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THE 



SCIENCE OF WEALTH. 



THE 

SCIENCE OF WEALTH: 

A MANUAL OF POLITICAL ECONOMY, 

EMBRACING THE 

LAWS OF TRADE CURRENCY AND FINANCE. 

CONDENSED AND ARRANGED 

FOR POPULAR READING 
AND USE AS A TEXT-BOOK. 



BY AMASA WALKER, LL.D., 

LATE LECTURER ON POBLIO ECONOMY, AMHERST COLLEGE. 



PHILADELPHIA: 

*1 B. LIPPIJSTCOTT & CO. 

187 2. 



Entered according to Act of Congress, in the year 1872, by 

A MAS A WALKER, L.L.D., 
In the Office of the Librarian of Congress at Washington. 






PEEFAOE. 



" The Science of Wealth" was first published by 
Messrs. Little, Brown & Co., of Boston, in 1866. From 
the sixth edition of that work, issued in 1871, the follow- 
ing has been prepared. It is a condensation rather than 
an abridgment ; nothing essential having been omitted, 
while much new matter has been introduced. The motive 
for doing this has been twofold : first, to make the work 
more generally accessible, — better adapted to popular use ; 
and secondly, and especially, to furnish a text-book on 
political economy, which in size, cost, and arrangement 
should meet more satisfactorily the present demand than 
any heretofore provided. 

Whether these objects have been successfully accom- 
plished in the present volume, others can more impartially 
decide than the author himself; but from the deep interest he 
feels in a science to which he has devoted the greater part 
of a somewhat protracted life, and his long experience with 
college classes, he is led to hope that he has gained that 
practical knowledge of the wants of the student which, in 
some measure, qualifies him for the task he has undertaken. 

The work now offered the public, to teachers, and others, 
is intended to be entirely impartial. ^"7 

Political economy can recognize no party interests, no 
national boundaries, no prescriptions, no assumed antag- 
onisms between the industries of different countries or 
between the different parties to production in the same 
country. Founded, like every true science, upon the ob- 

1* ( v ) 






tfv 



VI PREFACE. 

servation of facts, its purpose is to show what those facts 
teach. It pays no deference to the opinions or the preju- 
dices of mankind. Its only inquiry must be, "What is 
truth?" assured that in the answer to that question will 
be found the highest interests of humanity. Political 
economy may with great propriety be called the universal 
science, it being that in a correct knowledge of which 
\ every person, old or young, employer or employe, has a 
direct personal interest. It is not essential to the welfare 
'of the State that every one should understand chemistry 
or astronomy, but it is of vital importance to the public 
welfare that every citizen" should intelligently comprehend 
those laws by which the trade, currency, and finance of 
the country are governed. Public opinion, right or wrong*, 
as expressed through the ballot-box, will control the legis- 
lation of the country, and determine its economic policy. 

Fortunately the principles of this science are easily un- 
derstood, when properly presented ; and the experience of 
some twenty years with different classes has satisfied the 
author that students in general enter upon this study with 
greater alacrity, and pursue it with a higher zest, than 
almost any other. There is a sufficient reason for this, for 
it is at once discovered that every topic of which it treats 
has an immediate interest, — that the questions it discusses 
are those upon which they are certain to be called upon to 
act whenever they assume the duties of citizens in public 
or private life, — that while they might vote intelligently 
upon most subjects of public concern without any special 
acquaintance with many of the sciences, they could not, 
without a knowledge of political economy, act understand- 
ing^ in regard to the trade and industry of the country 
and the relations of capital and labor. 

In a country where every citizen has the right of suf- 
frage, its legislation must ever be in accordance with the 
popular will. Whatever the people believe their interests 



PREFACE. Vll 

to demand, their servants, in the halls of legislation, will 
certainly grant, for they are sure to act in accordance with 
the views of their constituents, whether those views are 
right or wrong. Hence, if the people are so well informed 
as to demand wise enactments, they will have them ; if 
they ask for measures injurious to their interests, they are 
equally certain to obtain them. 

These considerations, the force of which no one can fail 
to appreciate, render a knowledge of this science of high 
importance in the estimation of all reflecting minds. 

It may be added that the study of it need not be con- 
fined to those merely who are far advanced in general edu- 
cation. Common sense and a good knowledge of the Eng- 
lish language only are requisite to its successful pursuit. 
Intelligible and plain, the science has no abstractions, no 
fanciful theories. 

Although desirable that the instructor should be familiar 
with the- subject himself, it is by no means indispensable. 
With a well-arranged text-book in the hands of both teacher 
and pupil, with suitable effort on the part of the former and 
attention on the part of the latter, the study may be profita- 
bly pursued. We have known many instances where this 
has been done in colleges and other institutions, highly to 
the satisfaction and advantage of all parties concerned. 

A. W. 

North Brookfield, Mass., 1872. 



, 



TABLE OF CONTENTS. 



BOOK I.— DEFINITIONS. 

Chapter I. — Character of Science. — Distinguished from politics, 17. — 
The economic circle, 18. — Man's wants and nature's supply being con- 
stant, political economy a positive science, 19. — How far affected by 
legislation, 20. — Prejudices which retard its progress, 20. 

Chapter II. — Definition of Wealth. — Includes all articles of value, and 
nothing else, 22. — Definition of Value. — Objects of human desire, ob- 
tained by human effort, have value, and none else. Value is power in 
exchange, and nothing else, 23. — Illustrations, chieflv from F. Bastiat, 
25. 

Chapter III.— Distinction hetween Value and Utility, ,27. — Illustration, 28. 
— Material wealth assumed to be a good, 29. — Nature gives value to. 
nothing, 29. — Illustration, 30. 

Chapter IV. — Definition of Labor, 31. — Services of slaves not labor, 32. 
— Definition of Capital. — The labor of the past, 32. — Growth of capitals 
illustrated, 33. — Relation of Capital and Labor. — Competitors, not 
antagonists, 34. — A false philosophy, 35. — General Divisions of the 
Science. — Production, exchange, 22.- — Distribution, consumption, 36. 

BOOK II.— PKODUCTION. 

Chapter I. — Forms of Production. — Transmutation chiefly work of agri- 
culturist, 38. — Agriculture supplies men and materials for other indus- 
tries, 39. — Includes mining and fisheries, 40. — Transformation chiefly 
work of manufacturer, 40. — Distribution of manufactures, 41. — By ter- 
ritorial advantages; by great accidents, 41. — Transportation chiefly 
work of merchant, 42. — Where does the chemist belong ? Illustra- 
tion, 42. — Several forms generally united, 43. — Conditions of the highest 
production, 44.— Division of labor; co-operation of capital; economic 
culture, 44. 

Chapter II. — Division of Labor. — Illustrated, 46.— How far carried in 
fact? 46. 

Chapter III. — The Advantages of Division of Labor. — Increased dex- 
terity; better knowledge of business, 46. — Time saved in transition; 
invention facilitated, 47. — Individual abilities adapted to work, 48. — 
Power of capital increased; manufactures concentrated; profits re- 
duced, 49. — Apprenticeship shortened, 50. — Social development facili- 
tated, 51. 

(ix) 



TABLE OF CONTENTS. 



Chapter IV .— The Limitations to the Division of Labor. — When the opera- 
tion can no longer be subdivided ; when interested personal supervision 
fails j when the operations cannot be sufficiently localized, 52. — By the 
necessities of the seasons; for example, agriculture, 53. — Hence tend- 
ency of agricultural products to rise in price ; division of labor ap- 
plied to sciences and professions,* 54. — Specialties recommended, 54. 

Chapter V. — The Disadvantages of Division of Labor. — Tends to en- 
ervate the laborer, 55. — This may be avoided, 55. — Lesson of the 
recent war; tends to cramp and enfeeble the mind; this compensated, 
in part, by the greater communicativeness, 56. — By the intimate con- 
nection of mental faculties, 57. — Tends to lower average of health, 
shorten life, and diminish reproduction, 59. — Table showing average of 
life in different occupations, 59. — Lessens the number doing business 
for themselves, 60. — Relation of this to the formation of character, 61. 
— To the fairness of remuneration, 61. — To steadiness of employment, 
62. — Balance of results in favor of extension of the principle, 64. 

Chapter VI. — The Co-operation of Capital. — Capital is wealth employed 
in reproduction, 64.— -Distinction between capital and wealth, 65. — 
Fixed and circulating, 66. — Productive and unproductive capital, 68. 

Chapter VII. — Union of Capital and Labor. — The union of capital and 
labor effective when in just proportions; labor to decide the amount, 
71. — That amount varies in different countries, 71. — What in United 
States ? 72. — In Great Britain ? why Ireland is so depressed, 73. — Ca.n 
there be a surplus of capital? — Emigration of capita]. 76. — Its union 
with labor effective, again, when each is sure of its reward, 76. — Limits 
to its aggregation, 78. — Freedom of industry, 79. — Mischief of multi- 
plied restrictions, 80. 

Chapter VIII. — Economic Culture. — Is the distinction between produc- 
tive and unproductive labor real ? Adam Smith's list of unproductive 
laborers, 80. — All labor productive, 81. — Field of economic culture, 83. 
— Economic culture concerned with secondary influences of production, 
the rebound from consumption, 83. — Here production touches consump- 
tion, 84. 

BOOK III.— EXCHANGE. 
Part I. — Trade. 

Chapter I. — The Principle of Trade.— Arises from division of labor, 
illustrated by savage life, 86. — Divided as domestic, carrying, and 
foreign, 87. — Its amount governed by surplus production, 88. — Those 
trade most together whose productions differ, 89. —Climate, social con- 
dition, ethnical peculiarities ; territorial division of labor, 90. — Has few 
limitations and no disadvantages, 90. — General principles of trade are 
necessity of surplus, community of interests, 91. — Harmonizes indus- 
trial differences, 92. — Diminishes wars, 93. 

Chapter II. — Obstructions to Trade. — Of three kinds: 1st. Physical, ex- 
pressed by the term location ; one nation produces what another cannot, 
or can produce more cheaply, 93. — Illustration, two contiguous nations 
separated by mountains; obstacle removed; advantage to both, 94. — 
Production increased ; industry diversified, 96. — How trade thus en- 
riches nations, 97. — Obstructions the same in effect whether natural or 
interposed by government, 98. 



TABLE OF CONTENTS. XI 



Chapter III. — Legal Obstructions, or governmental interference with 
industry by tariff duties, imposed for one of four reasons: to raise a 
revenue, 98. — To encourage home industry; to sustain existing man- 
ufactures; to secure commercial independence, 99. — Tariffs of two 
general kinds: 1st, for revenue only; 2d, for protection, 100. — Those 
for revenue permit of free trade, 100. — A protective tariff forces industry 
into unnatural channels, and hence diminishes production and trade, 
101. — Economically, that government is best that governs least, 101. 
— No sense so subtile as that with which man detects his own wants, 
102. — Protection is founded on the opposite principle, 102. — This illus- 
trated by the iron manufactures of the United States; six reasons why 
this interest is selected, 102. — The five superior advantages enjoyed 
for making iron in the United States, 103. — The great natural protec- 
tion of cost of importation, 104. — Why, then, do we not make all we 
need? 104. — Effects of protection begun in 1816; general loss to the 
production of the country, 106. — Folly of anticipating an agricultural 
glut, 107. — Impolicy of legal interference, 107. — Illustrated by the paper 
interest during the last war, 108. 

Chapter IV. — Fallacies of the Protective Theory. — Fallacy 1. Good policy 
to protect an infant manufacture, 109. — Protects the bad and good alike, 
and perverts the industry of the country, 110. — Fallacy 2. Protection 
especially develops manufactures and enriches countries, 112. — Fal- 
l&cy 3. liaises the rate of wages, 114. — Fallacy 4. Protection a defence 
against pauper labor, 115. — Fallacy 5. A home market desirable to 
place the agriculturist by the side of the manufacturer, 117. — Fallacy 
6. Manufactures fatally exhaust the soil, 118. — Fallacy 7. That home 
capital is especially benefited, 119. — Fallacy 8. That free trade is 
especially beneficial to the mercantile class, 120. — Protection a ivar of 
interests, 121.— Proof of this, 122. 

Chapter V. — Protection (concluded). Other Obstacles considered. — Tariffs 
imposed to support existing manufactures, 124. — The practical diffi- 
culty, 125. — Tariffs imposed to secure commercial independence; in 
commerce or of commerce? 125. — "If freedom of intercourse were 
universal it would be well/' 126. — The Cobden treaty between France 
and England, 127. — Obstruction to trade by a defective standard of 
value, 128. — Facts in proof of this, 128. — Transportation obstacles, 129. 
— Social obstacles. Illustrated, 130. 

Chapter VI. — Balance of Trade. — The true state of trade cannot be 
ascertained by inspection of official returns, 132. — Balance of trade, 
how adjusted, 134. 



Part II. — Instruments of Exchange. 

Chapter I. — Barter and the different forms of Currency. — Three instru- 
ments of exchange, viz., barter, currency, different forms of credit, 
136. — A currency wanted to act as a medium of exchange, 137. — And 
as a standard of value, 138. — Requirements of such a standard, 138. — 
Currency of four kinds, viz., money, credit, mixed, and mercantile cur- 
rency, 139. 

Chapter II. — Money. — Forms used in different ages and countries, 141. — 
Advantages of gold and silver; possess value, are stable in value, 141. 
— Conveniently portable, malleable, of uniform quality, readily alloyed 



Xll TABLE OF CONTENTS. 



or refined, are indestructible, generally diffused, sufficiently plentiful, 
128. — And nearly inconsumable by use, 142. — Coinage, its advantages, 
145.— Coin, 146. 

Chapter III. — Credit Currency. — Transfers debts, does not pj.y tbem, 

146. — Folly of gold bill by Congress, 147. — Depreciates fixed incomes, 
• 133. — Vitiates contracts, 148. — Never kept to the natural volume of 

currency; seldom paid, 149. — In effect a forced loan; a direct tax, 150. 

— Loss to United States during late war from use of credit currency, 

150. 

Chapter IV. — Mixed Currency. — A modern invention ; Bank of England, 
151. — Composition; value and credit; its quality the proportion be- 
tween the two elements, 152. — Convertibility distinguished from re- 
deemableness, 153. — Inconvertible currency annihilated by being 
redeemed, 154. — Liabilities of mixed-currency banks, 154. — Bank 
balances the most dangerous element, 155. — Resources of banks ; 
definition of terms, 156. — Statistics of the mixed-currency banks, 15S 
— Convertibility of their issues, 160. 

Chapter V. — Analysis of Deposits. — Already defined; arise in five ways, 
162. — May be classified as compulsory, fiduciary, and active, 162. — 
The first kept to secure discounts, 164. — Highly dangerous to the cur- 
rency, 164. — Other kinds legitimate, 165. — Are deposits currency ? 
opinion of Lord Overstone, 166. — Of New York Board of Currency, 
166. — Indeed, more active. Illustration, 167. 

Chapter VI. — Mixed Currency , Fluctuations in Quantity and Quality, 168. 
— We have two great questions : 1st, does mixed currency perform satis- 
factorily the functions of money? 2d, what its effects upon public 
interests? 168. — Mixed currency not governed by laws of value, 169. — ■ 
Expansion always in excess, because it creates speculation and a fever- 
ish demand, 170. — Contraction takes place from any cause which affects 
credit, 171. — Export of specie withdraws only its own amount, 171. — 
Two classes of banks, 172. 

Chapter VII. — Tables and Diagrams of Mixed- Currency Fluctuations. — 
Table I., in absolute quantity, United States, 1834-59, 171. — Diagram 
1, in currency and proportion of specie per capita, same period, 176. — 
Table II., extremes of fluctuation, currency United States per capita, 
and quality of same, 1834-59, 178. — Table III., quality of currencies 
in the several States, 179. — Table IV., of currency of Massachusetts, 
different dates, 179. 

Chapter VIII. — Mixed Currency as a Medium of Exchange, 180. — Two 
offices of such a medium ; to transfer commodities, 164. — Mixed cur- 
rency satisfactory for this ; to discharge indebtedness, coin always 
reliable, 180. — Unsatisfactory, 182. — Dilemma of banks in panic, 183. 

Chapter IX. — Mixed Currency as a Standard of Value. — Vast importance 
of this function, 184. — What is a standard of value ? 185. — Illustration, 
186. — Justice of a uniform and universal standard, 186. — How a mixed 
currenc} 7 performs this function, 187. — Price, distinction between price 
and value, 189. — Table of prices for twenty-six years. Shown by Dia- 
gram No. 2. Explanation of it, 195. — Illustration of the effect of ex- 
pansion and contraction, 197. 

Chapter X. — Effects of a Mixed Currency. — 1st. Endangers domestic 
tranquillity, 199. — Currency of Massachusetts; savings-banks com- 



TABLE OF CONTENTS. Xlll 

plicate the matter, 200. — 2d. Demoralizes society, 202. — 3d. Endan- 
gers national safety in war, 202. — Obliges a nation to carry on war with 
broken-down currency, 203. — United States in great Rebellion, 204. — 
4th. Discourages domestic manufactures, 205. — Has always neutralized 
our tariff, 206. — Protection and currency. Shown by facts and illus- 
trated by diagrams, Nos. 3 and 4. What the diagrams treat, 211. 

Chapter XI. — Effects of Mixed Currency [concluded). — 5th. Disturbs 
and enhances interest, 212. — This the natural result; Diagram 5, 217. 
— Frequent and extreme fluctuations ; highest interest with greatest 
expansion ; lowest with least currency, 219. — Unequal effects of mixed 
currency upon different industrial interests, 220. — Oppressive effects 
upon agriculture especially, 222. — Table VI., 222. — How manufacturers 
are affected, 225. — How trade and transportation, 226. 

Chapter XII. — Fallacies regarding a Mixed Currency. — 1st, that it 
increases capital, 228. — Credit not capital; 2d, that it costs less than 
money, 228. — Instruments, to be cheap, must be efficient; mixed cur- 
rency is not, 228. — 3d, that it has caused the prosperity of the United 
States, 231. — No grounds for the supposition; 4th, that there is not 
gold and silver enough, 232. — 5th, that it is favorable to those who 
have little capital, 235. — 6th, that we could not have banks without it, 
236. — Banking may be profitable without ; illustrated from British joint- 
stock banks, 237. — 7th, that it can be regulated by law, 238. — 8th, that 
banks ought to " stave off" suspension, 239. — 9th, that at least stock- 
holders are enriched by expansion, 240. 

Chapter XIII. — Mercantile Currency. — A substitute for the precious 
metals : combines reliability with the convenience of paper, 242. — First 
substitute currency; Bank of Genoa, bills based on full specie; Bank 
of Amsterdam; Bank of Hamburg; England, 243. — English finance 
continually disturbed, and millions of annual loss involved, for a paltry 
saving, 244. — The change of currency easy to effect, 245. — Legitimate 
banking profitable, 246. — Needs little legislation; transition easy;/Vee 
banking, 247. — Upon what conditions, 247. — Gold notes, the true circu- 
lating medium upon which all banking should be carried on, 248. — 
Table VII. ; characteristics of the different kinds of currency, 250. 

Chapter XIV. — National currency of the United States, 250. — -In what 
respects it differs from that of the State banks, 251. — In what it resem- 
bles the latter, 253. — Character and condition of the national banks, 255. 
— Clearing-house certificates, 259. — Statistics, 260. 

Chapter XV. — Evidences of Debt. — Three kinds ; book accounts, 262. — 
Notes, 263. — Bills of exchange, 263. — Exchange, foreign and domestic, 
264. — Great saving of expense; indirect exchange, 265. — Foreign ex- 
change illustrated, 266. — Indirect foreign exchange illustrated, 266. — 
Trade of United States 1857, 268. — Natural rate of exchange, 26$. — 
Kate of British exchange explained, 269. — Value of the pound sterling. 
270. — Expense of shipping gold, 271. — Are bills of exchange currency ? 
do not pass from hand to hand, 271. — Are themselves discharged by 
currency ; are generally on time ; if dishonored, do not reduce amount 
of currency, 250. — Do not affect prices, 272. 

BOOK IV.— DISTBIBUTIOJN. 

Chapter I. — Divisions of the Subject. — Distribution the apportionment 
of wealth, 274. — Labor, physical, mental, and subsidiary, all receive 
wages, 275. — Capital loaned in two forms, one receiving interest, the 



XIV TABLE OF CONTENTS. 

other rent, 275. — Government claims a share ; we have therefore to pro- 
vide for wages, profit, interest, rent, and taxation, 276. 

Chapter II. — Wages. — Governed by laws of value; vary in different 
countries and ages, 276. — Importance of freedom and equality in se- 
curing fair wages; necessary wages, 278. — Wages depend on business 
enterprise, 278. —Distinction between real and nominal wages; illus- 
trated; facts in point, 279. 

Chapter, III. — Proportionate Rise and Fall of Wages. — Do not rise so 
soon or high as commodities generally, 280. — Wages unquestionably 
have a tendency to advance; 1810 compared with 1860, 282. — Work- 
men better off, 282. — Unhealthy trades ; compensation should be made : 
agricultural wages, for this reason, lowest of all, 283. — Education of 
the laborer; makes him more efficient, 281. — Frugality of the laborer; 
makes him independent, 285. — Neutralizes the advantage of the em- 
ployer; distinction of sex influences wages, 286. — Rate of difference, 
286. — Equality of numbers; industrial sphere of woman closely circum- 
, scribed; her products more dispensable; hence inferiority of compensa- 
tion, 287. — Cannot be increased by mere philanthropic efforts, 288.— '- 
Another classification of wages, paid respectively for physical, mental, 
moral power, 289. 

Chapter IV. — Labor Combinations. — Laborers have same right to com- 
bine as capitalists; friendly associations of England, 291. — Trades' 
unions ; lawful, but no coercion may be employed within or without 
these unions, 292. — Strikes lawful within the same restrictions, 294. — 
Do not permanently raise wages, 295. — Co-operative associations ; ac- 
count by Professor Fawcett, 296. — Conclusions, 298. — Conditions for 
co-operative success, 299. — Managers must be able and faithful, 299. — 
Credits must be neither given nor taken, 299. — Why ? 300. — Co-operative 
partnerships, 301. — Results of experiments favorable, 302. — Reduction 
of hours of labor, 302. — Effects of restricting the hours of labor, 302. — 
Must lessen production, 304. — Economic effects upon the laborer, 305. — 
Illustrations, 305-6. — -Laborer a consumer as well as producer, 306. — 
Effects oncaptital, 307. — The increment must be abridged, 307. — Equali- 
zation of id ages, 309. — Interference with apprenticeship, 310. 

Chapter V. — Profits. — The remuneration of the business man, 311. — 
Must not be confounded with interest, wages, or rent, 312. — The forms 
may be united, 313. — Profits of capital an inaccurate term, 314. Rate 
of profit tends to decline, 314. — Rapidity of exchange; its effect on 
profit illustrated, 314. — Profits governed by demand and supply, 315. — 
Dividends, how classified, 318. 

Chapter VI. — Interest. — Reward of circulating capital ; justified by right 
of property, 319. — Interest dependent on productiveness of labor, 320. 
Governed by demand and supply ; abolition of British usury laws : usury 
laws ineffective, 320. — Increase expense of borrowing, 321. — Create 
compulsory deposits, 323. — Interest influenced by unsoundness of cur- 
rency, 324. 

Chapter VII. — Rent. — Reward of fixed capital, 325. — Implies ownership ; 
implies society, 325. — Land the foundation of rent, 326. — Location the 
first element, 327. — Fertility the second element; illustrated, 328. — 
Third element; population, 329. — Fourth element; not proportionally 
productive in all cases, 329. — Land appendages, 330. 

Chapter VIII. — Principles of Taxation. — Necessity of government; it 
receives revenue; by taxation, 333. — Must be just and equal in a free 
country, 334. — Principles of taxation propounded by Adam Smith ; 



TABLE OF CONTENTS. XV 

First, equality of contribution, 334. — Explained and illustrated ; second, 
taxation must be certain and plain, 335. — Third, convenience of pay- 
ment to be considered; fourth, economy; a fifth principle proposed, 
taxation of mischievous consumption, 338. — Forms of American taxa- 
tion, 338. 

Chapter IX. — National Taxation. — 1 . Customs: duties of two kinds, 
specific and ad valorem, 339. — Specific duties unjust; ad valorem create 
fraud, and so far defeat revenue, 340. — Customs as a mode of taxation ; 
easy and effective: but unjust : not clear and plain to the contributor, 
340. — Customs expensive on account of the machinery, 341. — Bounties 
preferable for protection to customs, 344. — Excise as a mode of taxa- 
tion, 345. — Taxes on disadvantageous consumption ; eminently desira- 
ble, 346. — Stamps, 347. — Licenses or special taxes, 348. 

Chapter X. — National Taxation {continued). — Income tax; only per- 
fectly just principle; established in Great Britain: in United States, 
349. — Should be no exemptions as to persons or amount; objections 
answered, 350. — Deferred income, to be estimated, 352. — Operation of 
the income tax as between capital and labor, 352. — Taxation iqion ex- 
ports, effects of, 353. — Taxation upon cotton, when expedient, 354. 

Chapter XI. — State Taxation, generally direct, 355. — Poll-tax payers 
placed in a false position, 356. — The income-tax principle would re- 
move this, 357- — Illustrations, 358. — Taxation upon credits, 360. — Illus- 
trated, 361. — Ought government bonds to be ex emp>ted from taxation? 363. 
— Loss of valuation for taxation, 365. — Conversion of the national debt 
into capital. How? 365. — Practicable, 366. — Beneficial results, 367. 

Chapter XII. — Foreign Indebtedness. — Its economy, 368. — Different 
form, 368. — The exportation of stocks, 369. — Fallacies respecting foreign 
indebtedness, 370. — Fallacies concerning national indebtedness, 372. 

Chapter XIII. — Rise and Growth of the Modern Financial System, 377. 
— William III. of England author of modern system, 378. — Establish- 
ment of a revenue system, 379. — The triad, funding, banking, and indi- 
rect taxation, 380. — -Diagram of the British national debt, 382. — Fruit 
of this policy; extension of war system ; increasing indebtedness all 
over the civilized world; impoverishment of the masses; such a debt 
throws taxation on the productive classes, 384. 

Chapter XIV. — On the Laws of Inheritance and Bequest. — To whom does 
the world belong, the living or the dead ? 384. — The world belongs to 
the living, 385.— Wealth tends to pass out of the hands of a family or 
class, 386. — This liability of the rich is the property of the poor, 387. 
— The laws of entail and primogeniture mischievous and unjust, 388. 

BOOK Y.— CONSUMPTION. 

Chapter I. — Divisions of the Subject. — Consumption the use of wealth, 391. 
— Illustrated, 392. — Consumption divided as mistaken, luxurious, pub- 
lic, and reproductive. — Mistaken consumption, 393. — Capital applied 
for reproduction without result; frequent failures of industrial enter- 
prises, 393. — Causes, 394. — Luxurious Consumption. — What is luxury ? 
395. — General formula, 395. — Do luxuries directly encourage industry? 
Illustration, 397. — Do they indirectly encourage industry? 398. 

Chapter II. — On the Degree of Luxurious Consumption, 400. — Luxuries 
not confined to the rich; an extent of necessary wages, 400. — Relative 
consumption in luxury by different classes in Great Britain ; historical 



XVI TABLE OF CONTENTS. 

examples of luxury, 402. — The causes of luxurious consumption, 402. 
— Of learning and art; have value; their price varies, 404. — Effect of 
such consumption, 405. — Sumptuar} 7 laws ; supported by urgent reasons, 
405. — Found impracticable, 406. — Laws in the interest of morality 
should be sustained, 407. — Economical reason for government, 408. — 
Right to participate in consumption ; share? 408. — Government should 
take nothing from individual enterprise, 409. — Government should do 
nothing for display, 410. — Expense of government varies with circum- 
stances and character, 410. — Expenditures of European nations; of 
United States, 410. 

Chapter III. — Charity and Poor-Laws. — Not very important m United 
States, 411. — "What classes entitled to charity? all who require it, 412. 
— Who should administer charity, 412. — By what branches of the gov- 
ernment ; to what extent, 414. — To what extent poor-laws may be effect- 
ive, 414. — In what spirit charity should be dispensed, 416. 

Chapter IV. — The Finance of War, 417. — Fallacy that more money is 
wanted in time of war than in peace; evil effects of this, 417. — "Rais- 
ing money" no more necessary in time of war than peace, 418. — Except 
for obtaining foreign assistance, 418. — Economy of the war system, 
419. — War the greatest fact in public consumption; not accidental; 
consisting of (1) a permanent military and naval force; (2) constant 
preparations; (3) large national indebtedness, 422. — Statistics of 
European armies, 423. — Is war a moral necessity f 424. 

Chapter V. — Economy of Public Education. — Economic results of edu- 
cation, 427. — Prevents pauperism and crime; creates higher economical 
condition,* 428. — Secures more uniform distribution, 429. 

Chapter VI. — Population. — Reference to the theory of Malthus, his 
two postulates, 431. — Three fallacies: (1) as to subsistence; (2) as to 
propagation, 431. — (3) The supposed necessary relation of distress to 
these postulates, 433. — Reference to English pauperism, 433. — Causes 
that limit population, 433. — Self-restraint and social influences, 434. — 
Differences in the increase of the native and foreign population; how 
accounted for, 435. — (2) Engage in more healthy employments; (3) 
but, principally, are far less influenced by prudential considerations; 
American and foreign marriages in Massachusetts, 438. — Reflections 
upon the facts given, 438. 

Chapter VII. — Immigration. — Its large extent, 439. — Statistics of cen- 
sus of 1870. — Effect on wages, 440. — Effect on the condition of the 
native laborer, 442. — Chinese immigration ; its character; reflections, 
442. 

Chapter VIII. — Importance of a right consumption, 443. — Illustration 
of a right and wrong use of wealth, 446. — What is the economic good? 
447. 



POLITICAL ECONOMY. 



BOOK I. 

DEFHsTITIOI<rS. 



CHAPTER I. 

CHARACTER OF THE SCIENCE. 

^Political Economy is the Science of Wealth, and 
professes to teach the laws by which the production 
and consumption of wealth are governed/ 

The term " political economy" is not a fortunate 
one, since it leads the popular mind to a misappre- 
hension of what the science actually teaches, and 
confounds it with politics, or the science of govern- 
ment, from which it is distinct. 

The relations into which these sciences enter are 
voluntary, and for the supposed advantage of both, 
not from any logical necessity to complete either. 
A just and efficient government of the state is im- 
portant to realize the largest development of wealth, 
but only as a condition under which the laws of 
wealth, already complete and harmonious, may have 
their own proper sway. 

Government cannot furnish a new power in man, 
or a new agency in nature. It can, to a certain ex- 

2* (11) 



18 DEFINITIONS. 

tent, control the exercise of existing power, and the 
use of existing agencies ; but it can control only by 
limiting them. ,v Nothing is added through legisla- 
tion. The science of wealth is complete in its own 
principles, though the statesman may think it policy 
to contravene them for a supposed good. Political 
economy is, then, silent before the law. 

Political economy teaches the relation of man to 
those objects of his desire which he can obtain only 
by his efforts. He has wants, he needs food, cloth- 
ing, and shelter; he wishes many things not vital 
to him. Together, these constitute his wants, in r 
the view of political economy. This is the first fact 
of the science. It is the foundation of all. These, 
wants can only be satisfied by efforts. This is the 
second fact By it, man builds on the foundation laid 
in his wants. The objects or satisfactions obtained 
by these efforts are collectively called wealth, or 
those things which contribute to the welfare of man. 
This is the third fact to be noticed. The circle of 
political economy is here completed. It may here- 
after appear that there is a perpetual progress, an 
unceasing self-multiplication ; that each satisfaction 
creates a new want, which in turn seeks its object 
through an effort. 

Let us make a formal statement of what we have 
obtained : 

Wants, Efforts, Satisfactions ; or, 
Desires, Labor, "Wealth. 

The wants of man, in which are all the springs of 
wealth, are various, and change their place and form 
with times and circumstances. But they arise from 



CHARACTER OF THE SCIENCE. 19 

his nature. They are a certain and constantly- 
operating force. They commence with man's ex- 
istence, and terminate only with his life ; and, when 
all the desires of the individual are satisfied in the 
grave, and his labor paralyzed, the wealth he lays 
down in death becomes the possession of other men, 
with full strength and fresh desires ; and so the cre- 
ation of wealth goes on in ever-increasing circles, 
expanded by the central force, — the wants of man. 

While the one element of wants or desires is 
secured in the constitution of man's being, the other- 
element — viz., the relation of effort or labor to them 
— is fixed in the constancy of nature, and the per- 
manence we attribute to the created world, — a 
foundation sure enough to build upon. 

If, on the one hand, man's being were so consti- 
tuted that his wants should cease, or be intermitted 
without any reason at the time, and without any 
assurance of return, or prove too weak to move the 
activities towards their satisfaction ; or, on the other, 
nature were so disposed that labor had no guaranty 
of reward, resulting indifferently in good to the 
laborer, or in nothingness, or in positive injury to 
him who performs it, — we could have no science of 
political economy. 

/t^But, as man's being and nature's laws are found 
y., in experience, political economy is to be regarded 
y\ as a positive sciences Nothing in its fundamental 
principles is hypothetical or problematic. None of 
its methods are whimsical or accidental. Each 
thing is susceptible of clear demonstration. All its 
parts are calculable. 

In his efforts to supply his wants, we have said, 



20 DEFINITIONS. 

man avails himself of the powers of nature, the fer- 
tility of the earth, the stimulating quality of the 
sun's rays, the agencies of wind, water, and steam; 
all the dynamical forces and mechanical supports at 
his hand. He must, therefore, recognize these, and 
know the laws by which they are governed. But 
such inquiries do not come within the field of the 
political economist. He takes them from the hands 
of the physical philosopher, furnished to his own 
use. 

Let us say, then, that human nature in its wants, 
the physical laws which supply them, and the sta- 
tistics of human industry in all its manifestations^ 
are the material of our science. 

Political economy is a science whose laws may be 
disturbed in their operation, or made perplexing to 
observation, by the legislation of the state. Practi- 
>l cally, this is the great disturbing force which politi- 
cal economy has encountered in all the past. Wealth 
is the constant subject of legislation often in direct 
antagonism to its own laws.* 

The express purpose of much legislation has been 
to reform human morals by an external pressure on 
man's desires, or, at least, to reform human manners 
by denying all gratification of such desires; and 
this, not in the interest of religion, or for the safety 
of the state, but in matters of dress and equipage. 
Hence the laws of political economy are not only 
contravened by direct legislation, but are obstructed 
or perverted in many ways by false social 'and politi- 
cal opinions. 

It will be easily recognized as a part of that human 
yJ nature of which we have spoken, that the promul- 



DEFINITION OF WEALTH. 21 

gation of principles whose legitimate operation 
threatens the overthrow of long-established abuses, 
or which interfere with existing customs, should ex- 
cite prejudice and opposition. This is one of the 
chief difficulties the science has had to encounter 
from the first. Here we have the reason why it has 
made comparatively little progress, andis the only 
science that cannot obtain a candid and impartial 
examination from the mass of mankind. 



CHAPTER II. 

DEFINITION OF WEALTH. 

Having now given the three great facts on which 
the science is founded, it becomes necessary to fix 
precisely the terms to be used in the further devel- 
opment of these inquiries. Political economy is 
unlike all other sciences in this, that it has not the 
option of making or choosing its own terms. From 
the nature of the case, it is obliged to adopt words 
in common use. It is encumbered with all the 
notions, false or loose, which may have been at- 
tached to these. It has to speak of wealth; of 
value and utility; of labor and capital; of pro- 
duction, exchange, distribution, and consumption. 
These are common phrases. Each has a variety of 
meanings in popular language ; yet, when used in 
the discussion of this science, it must have one 
meaning as definite, exclusive, and precise as the 






22 DEFINITIONS, 

terms of natural history. The liability to confu- 
sion from this source can only be guarded against 
by being kept constantly in mind. Until the proper 
definitions become instinctive, so that they arise 
freely in their own shapes on the mention of such 
terms, there will be a constant slipping back, as it 
were, to their habitual meanings in common life. 
At the best, the laborious reference of the mind tQ 
formal definitions will tend to diminish the force of 
all representations and arguments where they ap- 
pear. The greatest obstacle, however, encountered 
by writers, is not that arising through popular 
prepossessions in regard to words, but it is their 
own misapplication of language, confounding things 
essentially distinct, and clothing exact principles in 
expressions so vague and indeterminate as to make 
science impossible. 

We have said that political economy treats of 
wealth ; but what is wealth ? In popular language, 
it is houses, lands, ships, merchandise, with a general 
"and so forth," — all that we call property. In sci- 
ence, the term "wealth" includes all objects of 
value, and no other. 

The principle is cardinal. The science turns on it. 

Political economy has been called the " science of 
values." No definition could be more strictly accu- 
rate ; but we shall retain that already given, as being 
more popular, and as nearer to the customary use of 
the words. It is, then, the science of wealth, under- 
standing that wealth consists of objects of value only. 



DEFINITION OF VALUE. 23 



DEFINITION OF VALUE. 



What, then, is value ? When does an article or 
commodity possess value ? 

When it is an object of man's desire, and can he ob- 
tained only by man's efforts. Anything upon which 
these two conditions unite will have value ; that is, 
a power in exchange. Value is the exchange power 
which one commodity or service has in relation to 
another. 

That such a power does exist is not a matter of 
dispute. Its influence is felt and acknowledged in 
every country, civilized or savage. This it is which 
excites to industry, creates commerce, and supports 
government. This power obeys laws as certain and 
immutable as those which appertain to any of the 
great forces of nature. Just as man is sure to feel 
wants, to put forth efforts, to realize satisfactions, 
so he is sure to be found exchanging an excess for, 
a novelty, a home product for that which comes 
from abroad, the work of his mind for the work 
of another's body. 

Again let us remark, that the term " value" always 
expresses precisely power in exchange, and no other 
power or fact. Desirableness is not value. Utility 
is not value. No objects are more useful and desira- 
ble than atmospheric air, the light of day, the heat 
of the sun ; yet these have no value. They will ex- 
change for nothing, because any one may have all 
he wishes without effort. 

An object, to possess value, must be desired by 
some one who is willing to render a service or equiv- 
alent in order to obtain it, for the reason that he can- 



24 DEFINITIONS. 

not have it without. It is what a man gets, what 
another will give, that determines value. 

It has been common for writers to speak of ex- 
changeable value, intrinsic value, value in use, etc.; 
but all these terms are inappropriate. The adjectives 
are superfluous. To speak of exchangeable value is to 
speak of exchangeable exchangeability. The term 
"value," in the science of values, always implies 
power in exchange, and nothing else. 

Of all the writers on the subject, no one seems to 
have been more full and clear in the definition and 
illustration of value than M. Bastiat, in his "Har- 
monies of Political Economy:" 

" Theorists have set out, in the first instance, by confounding 
value with utility. This was their first error ; and, when they per- 
ceived the consequences of it, they thought to obviate the difficulty 
by imagining a difference between value in use and value in ex- 
change, — an unwieldy tautology, which had the fault of attaching 
the same word l value ' to two opposite phenomena ,7 (p. 161). 

" The theory of value," he further says, " is to political economy 
what numeration is to arithmetic. Yalue is the relation of two 
services. The idea of value entered into the world for the first 
time when a man said to his brother, l Do this for me, and I will 
do this for you;' they had come to an agreement: then, for the 
first time, we could say the two services exchanged, — were worth 
each other." 

The case of the blind man and the paralytic is given 
in illustration. The blind man says, " I have limbs : 
you have eyes. I will carry you : you shall be my 
guide." Each receives a benefit; their services are 
exchanged, — valued by each other. Here we have 
value appearing, not in material wealth, but in ser- 
vices ; yet the principle is just the same as when the 
hatter says to the bootmaker, " I will give you a hat 
for a pair of boots," and they change accordingly. 



DEFINITION OF VALUE. 25 

They really exchange their mutual services, which 
have been put into the form of material objects. 
Another illustration is given : 

"I wish for water to quench my thirst; I go two miles to the 
spring and get it. My neighbor goes on the same errand. I say to 
him, < Bring me water, and I will do something in the mean time 
for you;. I will teach your child to spell.' Here is the exchange 
of two services: one is worth the other. Presently, I "say to my 
neighbor, l Instead of teaching your child while you are gone for 
the water, I will pay you twopence each time.' If the proposal is 
accepted, we say the service is worth twopence. If others in the 
neighborhood employ the same man to bring water, he becomes a 
water-merchant; and the value of water is as fully recognized as 
the value of wheat. The water, at first valueless, is now an article 
of wealth. It has not changed its chemical qualities, but services 
have become materialized, or incorporated with it. If the well, in 
the case supposed, were brought nearer to the village, the value of 
the water would be reduced, because less labor or service would be 
required to obtain it." 

Suppose an aqueduct built by the. joint labor of the community. 
The business of the human water-carrier has ceased ; but not the 
less is the value of the water, delivered at the door, the product of 
labor. The labor has been invested with a permanent form, as 
pipes, walls of masonry, gates, etc. Labor has been accumulated 
for the purpose, instead of using the hourly labor of the water-car- 
rier. The industry of the bricklayer and the plumber carries water 
years after they ceased to work on the aqueduct. 

We have said that it was not the properties of the water that gave 
value ; no more does the value reside in the mere delivery of the 
same. The water-works of some regions furnish them water on 
the ground, at the rate of a million and a half square feet a day to 
each square league. Yet the water has no value there ; for the 
agencies employed are not the labor of man, but the currents of 
air, — Nature's pipes and conduits. 

A diamond, as M. Bastiat observes, makes a great 
figure in works upon political economy, and he ad- 
duces an illustration which may be summarized as 
follows : I find a diamond. I am put in possession 

3 



26 DEFINITIONS. 

of great value. Has it cost me great labor ? No, yet 
someone will give me $10,000 for it. Why? Because 
he knows that it was a fortunate accident merely 
that gave me the diamond, and that he might search 
for years without finding one of equal value. The 
purchaser desiring it will give my price rather than 
undertake to find a similar one. His desire and the 
labor it might occasion him determine his estimate 
of the gem, not the labor it cost me ; it is therefore 
true, that the value of the diamond is measured by 
labor equally with any other article. 

M. Bastiat insists that value no more resides in the 
diamond than in air or water. 

"It resides exclusively in the services which we suppose to be 
rendered and received with reference to these things, and is deter- 
mined by the free bargaining of the parties who make the exchange. 
The pretended value of commodities is only the value of services, 
real or imaginary, received and rendered in connection with them. 
Value does not reside in the commodities themselves, and is no more 
to be found in a loaf of bread than in a diamond, the water, or the 
air. No part of the remuneration goes to Nature. It proceeds 
from the final consumer of the article, and is distributed exclusively 
among men." 

Again : 

" In order that a service should possess value in the economical 
sense of the word, it is not at all indispensable that it should be 
real, conscientious, and useful service. It is sufficient that it is ac- 
cepted, and paid for by another service. It depends wholly on the 
judgment we form in each case ; and this is the reason why morals 
will always be the best auxiliary of political economy. Economic 
science would be impossible if we admitted as values only values 
correctly and judiciously appreciated." 

The main principle in the theory of value is ex- 
pressed in the common phrase, " A thing is worth 
v what it will fetch,'' — that is, what some one will give 



VALUE AND UTILITY. 27 

for it; the value depending on the will of the pur- 
chaser, as determined by his judgment. Value is the 
appreciation of services. The value of a thing is the 
ss service or labor which it will command in exchange. 
If there is no resistance to the possession of an 
article, it can have no value. Labor alone does not 
always create value; but value never exists in an 
article, unless some one is willing to give labor, in 
some form or other, in exchange for it. 

The ancients thus described the combinations of 
exchange : 

Do ut des, Commodity for commodity. 

Do ut facias. Commodity for service. 

Facio ut des, Service for commodity. 

Facio ut facias, Service for service. 

This statement exhausts all the modifications of 
the principle. 



CHAPTER III. 

DISTINCTION BETWEEN VALUE AND UTILITY, 

We have now gone over all the ground belong- 
ing to the theory of value : but we cannot leave it 
without dwelling awhile on one part of it ; without 
clearly marking the boundary which separates it from 
the domain of utility, — a most troublesome and in- 
trusive neighbor. 

There is between utility and value a distinction as 
real as between weight and color. 

Suppose a farmer in Vermont has one thousand 



28 DEFINITIONS. 

bushels of wheat ; its value is two thousand dollars. 
Its utility is, that it will make forty thousand pounds 
of bread. 

A farmer in Illinois has one thousand bushels of 
wheat, equally good ; but its value is only one thou- 
sand dollars. Its utility is j ust the same. It will make 
as much and as good bread as the wheat of Vermont. 
The value, then, does not reside in the utility, but in 
the power in exchange. The wheat of Vermont com- 
mands a higher price than that of Illinois, because 
of its location nearer to the market. Here location 
means labor, — that is, the labor required to overcome 
it. This will be still more apparent if we suppose 
the farmer removed a thousand miles by land from 
any market. His wheat might then have no value; 
yet its natural, inherent utility would be as great as 
ever. 

Take another illustration. A pound of small nails 
or tacks formerly had the value of twenty-five cents, 
equal to one-fourth of a day's labor. By the intro- 
duction of machinery, the value was reduced to ten, 
then to five cents, or the twentieth part of a day's 
labor; the utility remaining all the time as at first. 
The value of many articles, especially those called 
manufactures, are, in the ordinary progress of human 
effort, constantly diminishing, though never annihi- 
lated. This is because the labor or service to be 
appreciated in such values is constantly lessening, 
though it can never wholly disappear. In this is seen, 
not only the certain distinction between value and 
utility, but one of the most beneficent laws of the sci- 
ence, which may be stated as follows : Value moves, 
diminished constantly by the substitution of the gra- 



VALUE AND UTILITY. 29 

tuitous agencies of Nature, by the ingenuity and in- 
dustry of man. Utility remains fast anchored in the 
wants of man and th'e properties of matter. 

Political economy makes no inquiry whether the 
increase of material objects of desire is, in truth and 
on the whole, a good. It assumes this. It leaves 
to others the discussion whether the highest in- 
terests of society are attained by repelling the kind- 
ness of Nature, and by denying the instincts of 
man. This kindness, and those instincts, political 
economy accepts, and goes forward from them. It 
can never become stoic. It is not a science, unless 
wealth is a good. 

It is a science; and it has no doubt that the 
healthful, honest increase of physical necessaries, 
comforts, luxuries, and refinements, with the oppor- 
tunities which they bring for mental improvement 
and moral culture, with the safeguards they place 
upon social order and personal rights, and with 
the manifold strong and subtle motives which they 
contribute to the exertion of all the human facul- 
ties, and the full, friendly intercourse of all commu- 
nities and peoples, — it has no doubt that this is 
desirable. Bat it does not labor to prove it so. It 
does not found itself on any supposed refutation of 
asceticism. It takes without inquiry the universal 
inclination to the accumulation of wealth, under the 
restraints of mutual duties and common rights. 

"We have said that Nature adds value to nothing. 
Though unceasingly at work for man, she receives 
no compensation. She creates utilities beyond com- 
putation, but does all gratuitously. Wind, water, 
and steam are most efficiently engaged in produc- 

3* 



30 DEFINITIONS. 

ing commodities necessary to the welfare of man- 
kind ; and the earth is unceasingly active to bring 
forth man's food in its many forms. Yet all is done 
without adding to the wealth of the world. The 
forces "work for nothing/' and hence confer no 
value. The power of the wind, for example, in pro- 
pelling vessels, adds no value to the articles trans- 
ported. But, it may be objected, would it not cost 
a great deal more to transport that merchandise, if 
it had to be done by human hands working at the 
oar? Certainly; and, from the very illustration, it 
appears that the power of the wind has not in- 
creased the value, but rather diminished it. It has 
taken the slaves from the bench, and does the mer- 
chant's rowing for him. It is Nature's work, not 
man's labor; and hence value goes down, while 
utility stands fast. 

Transportation does, indeed, add to the value, but 
only because man's vessels and man's labor are em- 
ployed in effecting it. All the natural forces that 
come in take off from value, because they reduce 
the amount of labor required in production and 
transportation. Take steam for an example in 
point. The services of this great agent in England 
are probably equal to the muscular effort of one 
hundred millions of men; but the whole of it is 
gratuitous. All that is required to secure these 
services is machinery and fuel, whose whole value 
has been given by labor. 

If we look to the fertility of the land, by far the 
greatest of all the natural forces engaged in produc- 
tion, we shall find that it confers no value. Is it 
asked, " Why, then, do men pay for the use of it? 



DEFINITION OF LABOR. 31 

Why buy it at a large price?" The answer at 
length to this question will be deferred till the dis- 
cussion of Rent; but it will be sufficient for the 
purpose of the present argument to say, that it is 
because appropriated or owned (whether rightly or 
wrongly) by individuals who can make a profitable 
use of it themselves. 



CHAPTER IV. 



DEFINITION OF LABOR. 



We have defined value at great length and with 
various illustrations, with the result, to our minds, 
that it arises from the union of desire and labor;, 
but we have not defined the latter term. 

What is labor ? 

The voluntary efforts of human beings to produce 
objects of desire. 

Labor is always irksome. This is law. Men do 
not voluntarily put forth their exertions, except for 
a reward. By the beneficent provision of Nature, 
habit assists our activities ; great desires overcome 
the sense of weariness and pain ; the impetus of one 
movement carries us on into the next. Toil has its 
compensations. Its fruit is pleasant and wholesome. 
But not the less is it, of itself, against the drift of 
man's natural inclinations. It is because men do 
not voluntarily put forth exertions, except for a re- 
ward, that everything which costs labor will, as a 



32 DEFINITIONS. 

general rule, command a corresponding amount of 
service or labor. Therefore it is that labor is the 
essential measure of value. Whatever disturbing 
causes there may be, it will, on the whole and in 
the long-run, be true that labor commands its 
equivalent in labor. 

In this definition, we have spoken of voluntary 
efforts alone, because involuntary or uncompensated 
efforts are not to be classed as labor. They are 
merely the result of the use of a given amount of 
capital. Slaves are owned, like horses or oxen; and 
what value they confer is from their employment as 
so much capital. This distinction is not unimpor- 
tant, because we shall see that capital is controlled 
by other laws than those which govern labor. 

Under a free-labor system, as will be shown, 
there are two proprietors of value, — the laborer and 
the capitalist. Under a slave-labor system, only the 
latter has any share in the product. 

DEFINITION OF CAPITAL. 

Labor enters into production, or the creation of 
values, in two ways: 

First As the labor of the present 

Second. As the labor of the past 

We call the first "labor" simply; the second, 
"capital," which is accumulated labor. In their 
nature, these are identical. They have assumed 
different forms, have acquired independent rights, 
and each obeys certain laws peculiar to itself. 
These two forms of labor may be, and often are, 
owned by different persons. One man has present 



DEFINITION OF CAPITAL. 33 

labor at his command. This must be his own. 
Another has accumulated labor. This may be his 
own, or that of others, of which he has come into 
possession. 

In practice, the two forms of labor must come 
together and help each other, if they would effect 
the barest subsistence of mankind. As society goes 
forward to plenty, comfort, luxury, civilization, the 
union and mutuality of the two become more inti- 
mate and vital. 

The growth of capital, and the steps by which it 
comes to its proper position in the creation of values, 
may be best shown by a familiar illustration. An 
able-bodied workman presents himself to you, 
having the full disposal of his own powers, fully 
representing the labor of the present, and that only. 
We will, however, compromise so far with his neces- 
sities as to allow^ him to be clothed; though each 
article he wears has come from the labor of the past, 
and, in this supposition, is capital. He has no tools; 
and, if you have no work that can be done without 
tools, you must deny him employment. His chances, 
then, of labor are hardly as one to a hundred with- 
out tools. In the other ninety -nine, he starves for 
want of capital. But, by chance, you find work re- 
quiring no help from accumulated labor. You set 
him to clearing a field by throwing the stones into 
heaps. He has secured subsistence for the day with- 
out capital. It was uncertain w 7 hether he would 
obtain it. His livelihood to-morrow is still more 
precarious. But no : he carries away his earnings 
for the day. He chooses to lay them out in an axe 
rather than on any object of comfort or pleasure. 



34 DEFINITIONS. 

He has practised a self-denial. He appears the next 
morning with his axe. He has enlarged the sphere 
of his activity perhaps fifty-fold. He has now fifty 
chances of employment. Before the close of this 
period, he can, by thrift, provide for his immediate 
bodily wants; pay for his clothes, for which we gave 
him credit more in charity than logic ; and become 
the possessor of a pick and shovel, scythe and rake. 
He is now a full farm-laborer, able to do any part of 
the strictly necessary work of agriculture with such 
tools as he has, and may rightfully expect employ- 
ment every day of the year. So it is, in the grand 
field of the world's industry, that capital — the accu- 
mulation of labor — helps the labor of the present, 
not only to its immediate sustenance, but to per- 
manent occupation, to increase, and to the highest 
economic civilization. 

RELATION OF CAPITAL AND LABOR. 

But this union creates the competing interests ot 
labor and capital, since they are generally found in 
different hands. An interest is, in scientific mean- 
ing, a share. Each has now only a share. Before, 
each had the whole of its own product, but a most 
melancholy whole. They are competitors ; for those 
shares are not determined absolutely in the nature 
of the union to which they have consented. It is by 
the earnestness and persistency of competition alone 
that either can secure its remuneration, or maintain 
its existence. 

But they are not antagonists. All their effort, 
even in the severest assertion of their individual 



RELATTOX OF CAPITAL AND LABOR. 35 

claims, goes to the increase of the common property, 
and the advancement of their mutual service. An- 
tagonism tends to destroy. Its purpose is, so far as 
it proceeds, to remove one or the other of the par- 
ties. The competition of labor and capital never 
ceases ; but it respects the bond of union in which 
only each has its own full development. 

Here we see the folty of the supposed antagonism. 
They are partners, and should divide the results of 
industry in good faith and good feeling. False phi- 
losophy, or unprincipled politics, may alienate their 
interests, and set them at discord. Capitalists may 
encroach on labor. Laborers may, in their madness, 
destroy capital. Such is the work of ignorance and 
evil passions. 

However far such a strife may be carried, it must 
result in mutual injuries; and health can only be 
restored by obtaining the recognition of the full 
rights and obligations of each. The condition of 
well-being is peace. A false philosophy has set the 
world at war for ages, proclaiming that what one 
nation may gain another must lose. Such a philos- 
ophy has had its trial, extending over centuries of 
waste and terror; and is now, fortunately, dishon- 
ored through the whole civilized world. 

Akin to it is the belief that hatred and retaliation 
are the normal relations of capital and labor, and 
that mutual distrust and hurtfulness are inevitable 
in all the developments of industry. Such a be- 
lief blasphemes the harmonies of Providence, — 
is sightless before the glorious order of man and 
nature. The cruel, shallow selfishness of capital has 
often robbed labor by means of law. Labor, im- 



36 DEFINITIONS. 

poverished, ignorant, degraded, has often turned 
upon its tyrant, and laid in a common waste church 
and state, letters and wealth. 

THE GENERAL DIVISIONS OF THE SCIENCE. 

1st. It being admitted that man has wants which 
he can satisfy from the world around him, and which 
he desires to satisfy as fully and easily as possible, 
we are first led to inquire in what manner this can 
be done most effectively, — how the forces at his 
command may be most advantageously employed ; 
in other words, what are the laws which govern the • 

PRODUCTION OF WEALTH. 

2d. Since men have different capacities and tastes, 
— since they are placed in a variety of circumstances 
as to soil, climate, and civilization, — their products 
will be various; and yet, since all men desire nearly 
the same objects, an interchange of their respective 
commodities will become a necessity. Hence arises 
that department of industry called exchange, the 
laws of which it is the province of political economy 
to investigate. 

3d. Almost all objects which men desire are pro- 
duced by the joint efforts of several individuals. 
One contributes strength ; another, skill ; another, 
capital, — yet the product must be distributed among 
them all, and in just proportions. As this division, 
it is quite clear, should not be left to the caprice of 
individuals, but be determined by natural laws, it 
becomes one of the departments of inquiry upon 
which the political economist must enter. It is here 
his duty to ascertain what those laws are, and under 



GENERAL DIVISIONS OF THE SCIENCE. 37 

what circumstances and conditions they will effect 
an equitable distribution of the wealth which has 
been produced. 

4th. As all commodities created by human exer- 
tion are designed for use, and as such use implies 
consumption more or less rapid, and as upon this 
depends the power and disposition for reproduction, 
the question of consumption has a scientific place 
among the objects of our inquiry, and will be found 
to possess a practical importance second only to that 
of production. 

These are the four great questions which suggest 
the general divisions of our subject; viz., produc- 
tion, exchange, distribution, and consumption of 
wealth. 



BOOK II. 

PBODTJCTIGIiT. 



CHAPTER I. 



FORMS OF PRODUCTION. 



All values are created by modifications of exists 
ing matter. Man cannot create one particle ; but he 
can modify what lie finds, or change its condition, 
in three ways; viz.: 

By TRANSMUTATION, by TRANSFORMATION, by TRANS- 
PORTATION. 

First, by transmutation. 

This is eminently the work of the agriculturist, 
who, availing himself of the chemical agencies of 
the earth and air, transmutes seeds into vegetables, 
fruits, and grains; and these again, by the aid of 
animal organizations, into butter, beef, hides, etc. 
This is the most extensive branch of industry, and 
employs probably four-fifths of the human race from 
generation to generation. It is the base of the 
great pyramid of production. It furnishes the ma- 
terial and the support of all other forms of labor; 
and not this only, but it renews and restores their 
waste with an unceasing supply of fresh bodily and 
( 38 ) 



FORMS OF PRODUCTION. 39 

mental power. The air of trade and of the mill 
heats and rises, and cold currents rush in from the 
prairie and the mountain. The foot of the rustic 
is ever turned to the marts of commerce, and the 
busy gatherings of men. 

Just as agriculture sends to the markets and the 
mills of the world their materials, so it sends them 
their workmen. Strength and even life go fast in 
the eager competitions of manufactures and trade. 
Cool air, fresh blood, flows in from the country to 
supply the waste. The bare, bleak hills, where 
Nature grudges every morsel of food, and stabs 
cruelly through every chink in the wall, every rent 
in the clothes, feed the busy cities with men. The 
streams of vigorous life run off* from them to refresh 
the plains below. 

Agriculture has no need to receive back, in any 
form, her contributions to the other occupations. 
The power to give without exhaustion lies in the 
liberal, healthful reproduction of man, when living in 
intimate relations with Nature. Here, after all its 
hurts, humanity comes for healing. War and pesti- 
lence, the fierce contest of the mart, the stifling 
atmosphere of the mill, may waste our kind in quick 
or lingering deaths; but still, by the side of the 
brooks, men will be born to hold up the frame of 
industry and social order when their supporters 
faint and fail. 

But the department of agriculture is not confined 
to the popular view of it. When grain is produced, 
the seed must be planted in prepared ground, the 
long interval of growth to maturity must be filled 
with care and labor; and, at last, the work of 



40 PRODUCTION. 

harvesting completes the round of duties that go to 
the production of the grain. But there are great 
industries in the department of agriculture, where 
harvesting alone is performed by man. Nature has 
done all the rest. Man's part is to find and to take 
of her bounty. Such an industry is mining, — 
whether of iron or coal, whether of diamonds un- 
derground in Golconda, or sponge under water in 
the Archipelago. Such an industry is the fisheries, 
— whether of whales oft* Greenland, of cod off New- 
foundland, or of pearl-oyster oft' Ceylon. 

Man modifies matter and exchanges its condi- 
tion, — 

Secondly, by transformation. 

This is the business of the manufacturer and the 
mechanic. These create values by changing the 
forms of matter, as cotton and wool into cloth, iron 
into tools and implements. This is the second great 
department of human industry. Its ramifications 
extend throughout the world, yet not everywhere of 
the same vigor and extent. Since manufactures, as 
a whole, do not meet wants so primitive and abso- 
lute as does agriculture, they are, by a law evident 
in all industry, found not to be so equally diffused. 
Those needs which are peremptory and instant will, 
from that reason, tend to obtain their supply from 
the immediate neighborhood in which they arise. 
The nearer objects of desire approach to being lux- 
uries, the more cosmopolitan they become. 

The distribution of manufactures is governed by 
a variety of conditions, among which may be briefly 
stated the following: 

1. The industrial genius of a people. Without 



FORMS OF PRODUCTION. 41 

plunging into the deep questions of ethnical differ- 
ences, or compensations in the whole of character, it 
is yet evident beyond discussion, that the active 
•powers of every people have something of their own 
which they do not fully share with others. Were 
all the nations of the earth possessed of mental, 
moral, and physical qualities which could be posi- 
tively estimated to be, in the sum of them, equal, it 
is quite certain that they would be far from simi- 
lar: their energies would develop in different lines 
towards different objects. Patience and a kind of 
business faith distinguish some peoples, mark their 
features, and are impressed distinctly in the results 
of industry. Activity and daring speculation no less 
characterize others. To a class of minds thoroughly 
representative of more than one nation, mechanica^ 
contrivance gives the same glow of pleasure that 
rewards the painter for his years of toil. 

2. The territorial advantages of a people, which 
are both positive and negative in their nature, — posi- 
tive, as a people is endowed with water-power, and 
with the collocation of necessary materials, as of ore, 
coal, and lime for making iron ; negative, as a people 
is not attracted to other branches of production by 
superior facilities. It is estimated that Holland has 
not agricultural capacities to supply a third of its 
population. 

3. Great accidents, belonging neither to the essen- 
tial genius of the people, nor its territorial endow- 
ments. Such are the transcendent discoveries in the 
sciences and the arts. Such are wars which exhaust 
nations, leaving them weak for generations. Such 
are persecutions, like that which scattered over the 



42 PRODUCTION. 

continent six hundred thousand Huguenots, — the 
cunning artisans of France ; like that which wrought 
devastation still greater in the " reconciled" prov- 
inces of Spain.* 

But man modifies matter or changes its condi- 
tion, — 

Thirdly, by transportation. 

The merchant does not primarily create value in 
objects, but enhances that already existing by trans- 
porting such objects from one locality to another. 

The characteristic illustration is of the most fa- 
miliar kind. Cotton bought at New Orleans, in 
1860, for twelve cents per pound, transported to 
Liverpool, would have sold, say, for fifteen cents. 
By his capital and skill, the merchant has added 
twenty -five per cent, to the value or exchangeability 
of the cotton. He has increased the wealth of the 
world so much. He, therefore, has produced value. 
Such transactions are useful alike to the producer 
and to the consumer of the articles transported. 

In so far as the transportation of products gives 
them value, it belongs to the present general division 
of the subject ; but its methods and agencies are so 
unlike those of the other forms of production, it is 
governed by laws so peculiar and complete in them- 
selves, it composes so large and easily separate a 
department of inquiry, that it is, for the discussion 
of its principles, placed as a general division of the 
science under the title of "Exchange." To com- 

*" Our manufactures were the growth of the persecutions in the 
Low Countries." — Edmund Burke, in his speech to the electors 
of Bristol. 






FORMS OF PRODUCTION. 43 

plete the sphere of production, we recognize here 
the share it has in creating values; but the means 
by which this is effected, and the impressive phe- 
nomena exhibited in the operation of this agency 
throughout the entire world, are set apart for special 
consideration. 

We have thus gone through the three forms in 
which man modifies matter to create values, — trans- 
mutation, transformation, and transportation. The 
inquiry will at once occur, whether these exhaust all 
possible efforts in production. The answer may 
come out more clearly if we proceed by an illustra- 
tion. 

The chemist has been ranked, by some scientific 
writers, among the agricultural class, because he so 
aids and directs the processes of Nature as to pro- 
duce objects of value by changing the elementary 
powers of acids and alkalies into salts, etc. That is, 
he transmutes. It seems more accurate to say, that 
he belongs among producers just so far as he assists 
in any one of the three forms defined. 

The division we have made of production into 
three modes seems to afford the best view attainable 
of the subject. It will be observed, that these are 
not distinct forms in which labor appears, as in so 
many moulds; but that they result from an arbi- 
trary classification of individual efforts, according to 
the best reason of the case. The whole authority 
of such a classification consists in this, — that it seems 
more complete and definite than any other which is 
offered. All these forms of productive effort may 
be united in a single commodity ; and, indeed, there 
are but few products which do not contain them all. 



44 PRODUCTION. 



CONDITIONS OF THE HIGHEST PRODUCTION. 

If labor, through some form, produces all wealth, 
we are led to inquire into the circumstances and 
conditions that increase or diminish the efficiency of 
this great force. That there are mighty variations 
as it appears in different countries, and even in adja- 
cent communities, is so manifest as hardly to require 
mention or illustration. 

If the wealth of any nation cannot be determined 
merely by the proportion of its population to that of 
the world, or of its territory to the general mass of 
the globe, — as it clearly cannot, — the question, 
Why ? introduces us to the discussion of all those 
influences which directly or indirectly, immediately 
or remotely, make one to differ from another. These 
may be classed as follows : 

Division of Labor. 
Co-operation oe Capital. 
Economic Culture. 



CHAPTER II. 

DIVISION OF LABOR. 

In some countries, a man wishing for a chair goes 
into the forest, fells a tree, carries the timber to his 
workshop, forms the parts, and puts them together 
into a chair. It is a rude and imperfect article, but 
it has cost him the labor of two days. 

In other communities, we find a chair, equally 



DIVISION OF LABOR. 45 

serviceable and far more elegant, produced by the 
labor of half a day. Here one man cuts the timber, 
another transports to the mill, another saws it into 
suitable dimensions, another forms the legs, another 
the seat, another the back, another puts the parts 
together, while still another paints it. A great many 
chair3 are produced by the combined labor of many 
individuals; and the result is, that one chair has the 
value of only half a day's labor. Three-fourths of 
the labor employed in the making of chairs is, then, 
liberated, to rest in idleness, or to apply itself to fur- 
ther production with still increasing results, as the 
desires which control efforts shall determine. We 
cannot be ignorant, that, in some communities, 
labor, when set free, does waste itself in idleness and 
frolic. But this is true chiefly of those in which 
leisure is bestowed, not by man's contrivance, but 
by the generosity of Nature. 

But it may safely be assumed, that such an indus- 
trial genius in a people, as seeks to lessen present 
labor by the distribution of its several offices, will 
find fresh objects of desire. The very thoughtful- 
ness and care, the social confidence, and mutuality 
of service, which are required to effect a division 
of labor, insure such a susceptibility to new indus- 
trial wants as shall necessitate the employment of 
all the labor so relieved. 

The full discussion and illustration of this princi- 
ple, which governs the use of labor saved, belongs 
to the third inquiry; viz., that of " Economic Cul- 
ture. " "We have here, strictly, to show only how 
labor is saved by the division of employments. This 
forms the great fact of modern industrial civilization* 



46 PRODUCTION. 

"We shall find it the most important condition of 
production, multiplying all its powers faster than the 
soil multiplies the seed. Here is more of the expla- 
nation of wealth than can be found in all other in- 
quiries. This force is being rapidly introduced into 
every department of industry, and will finally become 
as general as the nature of the different employments 
will admit. We do not find that it has yet reached 
its ultimate limit in any sphere of human activity. 

What is the significance of division of labor, as 
expressed in the fewest words ? It is, that each 
workman confine himself to a single operation. In 
this way all great and successful manufactures are 
carried on. 



CHAPTEE III. 

THE ADVANTAGES OF DIVISION OF LABOR. 

1st. It gives increased dexterity. All common 
observation testifies how rapid and accurate our mo- 
tions become, w 7 hen confined to a single operation. 
The powers of his body are in perfect discipline. 
They have learned their parts, and obey instanta- 
neously and harmoniously. The more simple the 
movement assigned, the greater will be the effi- 
ciency of performance. 

2d. It allows the workman a better knowledge of 
his business. This is to the mental powers what the 
first is to the bodily. It gives intellectual dexterity. 
The man has a mastery of his special operation. He 



ADVANTAGES OF DIVISION OF LABOR. 47 

knows more about it than if he had two things to 
think of and care for. He becomes shrewd in every 
motion. He adapts his labor to the material ; he 
discriminates between the qualities of that material. 
He meets the little difficulties of his work with more 
skill and less waste. 

3d. It saves time, in passing from one work to 
another. In the making of a chair after the primi- 
tive fashion we have supposed, a great deal of time 
will be spent in passing from one part of it to 
another, from the place of one operation to that of 
another. It is not a loss alone of the time physi- 
cally necessary in effecting the transition, but each 
operation will leave something to harass the mind 
in the other. During the first part, the attention 
will be distracted by what has just been left. Dur- 
ing the last part, the attention will run on, antici- 
pating what is to come. The shadow is cast both 
ways upon the mind. 

4th. It facilitates the invention of tools and ma- 
chines. If a treasure of gold or iron or oil is hid 
under the ground, the discoverer is more apt, other 
things being equal, to be the man who owns the 
land, and resides and works on it, than a casual vis- 
itor. So, if there is possibility of adapting foreign 
forces to the production of values, the inventor will, 
on the same condition, more probably be the work- 
man than any one else ; he is constantly engaged 
upon the operation ; he desires, of course, to sim- 
plify it, since it is a law of mind to do as little work 
as possible for a certain result ; he knows the wants 
of the subject; he knows all the capabilities of his 
material ; he thinks about it all the time, and can 



48 PRODUCTION. 

try an experiment without changing his place. 
Therefore, by the logic of Nature, he invents. 

5th. It secures the better adaptation of physical 
and mental abilities. No consideration is more vital 
than this. The work which man finds to do, the 
efforts he has to make for satisfactions, however 
high his wants may rise, will be of the most various 
character, and require the most diverse powers. 
There are operations which demand great strength; 
others, rapid motion; others, good judgment; others, 
a mechanical eye ; others, fidelity and trust; others, 
high intelligence and education. Such qualities, 
even those purely physical, are not found equally in 
all; nay, by the compensations of Nature, they are 
generally, though not necessarily, found apart. 
Therefore, unless work were divided according to 
the several qualities required, a deficiency in one 
would neutralize all the others, and exclude the 
workman from employment, or compel him to work 
at great disadvantage. 

The extensive applications of this principle will 
occur to every mind. Each man finds the sphere of 
his highest usefulness as he is endowed by Nature. 
Those who are gifted with education and ingenuity 
devote all their time and energy to duties appro- 
priate to such powers. They thus confer on others 
the advantage of their own gifts, and are themselves 
spared from drudgery and uncongenial labor. The 
poorest in qualifications, also, find a place in which 
they can produce within the great partnership of 
society. Women are enabled to undertake business 
of the most delicate and important character, to 
which their strength is sufficient ; while children of 



ADVANTAGES OF DIVISION OF LABOR. 49 

all ages take parts that would otherwise occupy men. 
The power saved or gained, by such an adaptation of 
talents to special branches of industry, is incalculable. 

And not merely do all find in a proper division of 
labor their full occupation and fair reward, but the 
work of each is just as truly productive as that of 
any other. The boy who watches crows does as 
much at that business as the bravest and greatest of 
earth. He takes the place of some one who goes 
awav to do a larger work. 

6th. It increases the power of capital in produc- 
tion, tends to concentrate manufactures in large 
establishments, and reduce profits. 

Supposing all men equally capable of carrying on 
independent business, which is not the case, — if we 
compare seven men each with a capital of $1,000 and 
one man with a capital of $7,000, we shall find the 
economical advantage greatly in favor of the latter. 
The former must do business on a small scale, and 
purchase materials in small quantities. The latter 
can buy at wholesale prices, can afford to go often to 
market, and to keep himself well informed, and will 
sell as well as buy to great advantage. 

In addition to this, the large manufacturer can 
afford to work for a smaller rate of profit. 

A single hatter, for example, who makes only 
$2,000 worth of hats, must secure 25 per cent, in 
order to have a net income of $500 ; while the man 
who can make $20,000 worth of hats will, if he real- 
ize only 12| per cent., have an income of $2,500.* 

* The shoe trade affords a conspicuous illustration in pqjnt. At 
the beginning of the present century it was almost wholly carried 

5 



50 PRODUCTION. 

We see from these illustrations why the great 
establishments drive smaller ones out of the market. 
A tendency to a reduction of profits is a natural con- 
sequence of this. Therefore, other things being 
equal, it is desirable that manufacturing establish- 
ments should be sufficiently large to secure ail the 
advantages of concentrated capital, and effect the 
complete division of labor. 

7th. It shortens apprenticeship. 

Every art, trade, or profession must be preceded 
by an apprenticeship, more or less extended, accord- 
ing to what is necessary to be learned. A trade 
which, in order to be perfectly understood in all its 
parts, requires an apprenticeship of seven years,— 
if it be subdivided into seven different operations, 
may, it is evident, be obtained with as great a degree 
of perfection by an average, in each branch, of one 
year's service. Some of the parts may require more 
than one year, others less. 

Now, w r e find this to be practically true ; and the 
result is a great saving of time, and time is money. 

For example : 

Seven men serve seven years each to learn to make hats, 

— in all, a service of 49 years 

Seven men serve one year each to learn to make a seventh 

of a hat, equal to 7 " 

Saving of 42 years 

on by individual mechanics working in small shops and requiring 
a " kit" costing but a few shillings. Now vast factories are erected, 
steam or other power applied, a large variety of labor-saving ma- 
chinery introduced, and the business is carried upon a scale of sur- 
prising magnitude ; one establishment in Massachusetts producing 
G,000 pairs of boots and shoes daily. Of course a very small per- 
centage of profits must give a great annual income. 



ADVANTAGES OF DIVISION OF LABOR. 51 

in the mechanical education of every seven men employed in this 
manner. 

Apply this principle to the manufacturers of Massachusetts, 
which has at least 75,000 skilled workmen, and suppose the appren- 
ticeship to be seven years, we have — 

75,000 at 7 years each 525,000 years 

75,000 at 1 year each 75,000 " 



Saving of 450,000 years 

in one generation of skilled workmen. - 

If we suppose these years, saved from apprentice- 
ship, to have an average value of $200, we have a 
saving of $90,000,000 for each generation of skilled 
workmen in Massachusetts. 

The principle, under which this saving of time is 
made, "Cannot be disputed. 

8th. It gives opportunity for greater social devel- 
opment, and increases the social power of labor. 

This is immediately of moral interest; but it has 
important economic bearings. The principle itself 
is indisputable. Not only is the workman brought 
near his fellows, and, by such contact, stimulated to 
industry, to acquisition, to taste; not only does such 
association of purposes and means afford more of 
the instruments of intellectual advancement, — 
schools, lectures, churches, journals ; not only does 
the close neighborhood of mind quicken and 
brighten all the faculties, teaching by example, and 
firing by controversy; but, by such association, 
workmen are brought nearer their employers, have 
a greater sympathy and co-operation, act intelli- 
gently and harmoniously as to their rights, and form 
a public opinion among themselves which has often 
been found a great power, economically and civilly. 



52 PRODUCTION. 



CHAPTER IV. 

LIMITATIONS TO THE DIVISION OF LABOR. 

But the great principle of division of labor, so 
very beneficial in its operations, is yet limited by 
certain conditions, which it cannot disregard. 

1st. When the principle has been so far applied 
that each operation has been made as simple and 
fully a unit as human ingenuity can devise. Be- 
yond this, there is no division, but only repetition. 
Any attempt to refine the process so far as to give 
the workman less than one naturally complete 
motion of the body, will only embarrass and delay 
industry. 

2d. When the concentration of capital has become 
so great that interested personal supervision cannot 
be brought to bear upon each department, and upon 
the whole enterprise, with sufficient intensity to in- 
sure efficiency and fidelity on the part of those em- 
ployed, and harmony in the general conduct of the 
business. Beyond this point, the advantages derived 
from the power of concentration are neutralized. It 
may become mischievous. It is well that there 
should be limitations, because they prevent such 
aggregations of capital as would swallow up the 
whole industry of a state. 

3d. Where the industry consists of an indefinite 
number of parts, yet the special circumstances will 
not allow each workman profitable employment in 



LIMITATIONS TO DIVISION OF LABOR. 5d 

a single operation, — for example, agriculture in most 
of its branches : first, from the fact that its opera- 
tions cannot be sufficiently localized ; and, second, 
from the necessities of the seasons. No department 
is capable of so much subdivision as this ; yet, in 
practice, none experiences so little. In mining, the 
fisheries, and many incidental matters, it is effected 
to a considerable extent ; but, in most of the parts 
of pure agriculture, it has very limited range. 

Generally speaking, the farmer is a laborer of a 
thousand duties. 

This fact alone does not account for the different 
productiveness of the manufacturing and the agri- 
cultural interests. In the nature of their objects, it 
is found that machinery must be applied to them in 
far different proportions. The mechanic arts, which 
can be localized to the highest degree of concentra- 
tion, and made general to all seasons of the year, 
admit also of prodigious multiplication by artificial 
agents. From these considerations, we deduce the 
principle, that the value of agricultural products, as 
a class, — that is, their power in exchange for pro- 
ducts other than agricultural,— will be constantly 
increasing. A bushel of corn, in 1820, would pur- 
chase only four yards of cotton cloth. In 1860, it 
would purchase ten yards of the same or better 
quality. This difference will continue to grow wider 
and wider as the mechanic arts advance; but not 
indefinitely, inasmuch as the materials of manufac- 
tures are always themselves of agricultural origin, 
and hence the depreciation of the price is limited. 

We have thus far spoken of the division of labor 
as applied only to direct, material production, affect- 

5* 



54 PRODUCTION. 

ing the laboring classes, and those immediately 
superintending them; but the principle has been 
extended to mental labor, as well as that which is 
simply muscular. 

The recognition of professions and industrial 
classes is itself a tribute to the great principle of 
the division of labor ; but it proceeds still further, 
to assign special functions, within those professions 
and classes, to individual members. Thus the law, 
when a sufficient concentration of legal labor is 
secured, branches into the departments of titles and 
conveyances, of insurance, of marine losses, forfeiture 
and salvage, of patents, of criminal jurisprudence, 
etc. In medicine, the eye, the ear, the skin, con- 
sumption, fevers, cancers, have each their own prac- 
titioners. 

That science and skill are promoted by such sub- 
division, and that the immediate efficiency of pro- 
fessional labor is greatly increased thereby, cannot 
be intelligently questioned. 

As any community advances to a higher civiliza- 
tion, specialties are more and more resorted to. In- 
dividuals, finding themselves peculiarly adapted by 
their talents and tastes to a particular calling, or 
having unusual advantages for the pursuit of it, give 
themselves up to that object. They concentrate upon 
it their thoughts, their time, and their resources. 
They excel. They know more, and can do better, 
in their chosen line than those about them. This 
gives them position and power. They are sought 
for, are looked to, because they have something that 
is wanted. No matter how humble his station, or 
how minute his field of investigation, if a man under- 



DISADVANTAGES OF DIVISION OF LABOR. 55 

stands something perfectly, his w.orld — whether a 
hamlet or an empire or the race — will resort to him. 
He becomes a benefactor of society. 



CHAPTER V. 

THE DISADVANTAGES OF THE DIVISION OF LABOR. 

1st. It tends to enervate the laborer, because it 
does not, as a general fact, give full activity and de- 
velopment to all the functions of the body. 

In the material occupations, it is found that con- 
finement to a single operation is often highly injuri- 
ous. There are forms of labor which sufficiently ex- 
ercise the several parts of the body. But there are 
those which require the constant fatiguing use of 
some member, to the injury of the rest of the body ; 
others require a cramping posture that oppresses and 
disorders the vital organs; others still require the 
workman to poison his blood with unwholesome 
gases. In the great centres of capital and labor, — 
whether we regard the mill, or that larger mill, the 
city itself, — it is notorious that distortion, paralysis, 
and organic feebleness are more common than where 
labor is diffused, and the laborer changes his work 
and his place frequently. 

That this will occur in the course of all manufac 
turing industry is probable. That it is inevitable 
does not so clearly appear. The sanitary arts keep 
even pace with the advance of machinery. The civil 
war in America developed astonishingly the re- 



56 PRODUCTION. 

sources, which are at the command of government, 
to suppress malaria, and reform the habitations of 
disease. The growth of manly sports, and the cul- 
tivation of gymnastics for health's sake, are likely to 
work a great change for the better in the sanitary 
conditions of our people. Besides, a gradual reduc- 
tion in the hours of labor is very certain to take place 
with the introduction of improved machinery. Once 
twelve hours constituted a day's work in the factories 
of New England. Eleven hours has since been 
adopted, and now, in many cases, ten hours constitute 
a day's work. A strong effort is being made to secure 
that number of hours as the maximum for all women 
and children. This is not only humane and just, but 
truly economical ; since it cannot admit of a doubt 
that ten hours is the utmost limit at which the health 
and longevity of those classes can be preserved, while 
no small children, if allowed to work at all in facto- 
ries, should be employed more than half a day. 

Mechanical operations were formerly considered 
as disqualifying for military service ; and even our 
modern philosophy has found in them a reason for 
the employment of mercenaries, and the maintenance 
of standing armies. But the great civil war just re- 
ferred to exhibited the novel fact, that, beyond all 
dispute, the troops raised in agricultural districts are 
not so hardy in the privations and exposures of camp 
and field as those coming from the towns. This does 
not, however, imply a better state of health at home. 
It may be, that the latter class find, in the constant 
exercise and the out-door employment, just that 
change of habit and condition which they needed. 
All that is different from their usual course of life is 



DISADVANTAGES OF DIVISION OF LABOR. 57 

in the direction of more air and light and motion ; 
while the agricultural laborers find no change except 
for the worse. 

2d. This system, in some of its applications and in 
certain degrees of extension, does not give that full 
employment and expansion to all the powers of the 
mind which its normal development requires. This 
is obvious. The mind, if intensely devoted for a 
whole life to a single effort, and that perhaps of 
the most simple kind, cannot but be unfavorably 
affected. Unless counteracting influences are re- 
sorted to, it will undoubtedly be contracted and 
enervated. 

To this liability are opposed three compensations: 

a. The great communicativeness observable in 
sucn circumstances, the eager discussions, the free 
inquiry, the school, and the lyceum. 

6. The saving principle that the employment of 
one member is, to a certain extent, the employment 
of all. The human faculties, mental and physical, 
are a knot. They interpenetrate so completely that 
it is impossible to move one without affecting the 
rest. The special use of one may develop it greatly ; 
make it more strong and active than the others. 
But such a predominance is not distortion. Few 
minds are capable of even and temperate growth. 
In this principle resides the variety of human char- 
acter. It may be questioned whether any but the 
most gifted can be educated in any other way so 
thoroughly and efficiently as by interested applica- 
tion to some single matter. Generalization and 
broad philosophy rouse the full powers of but few 
intellects. In the majority of cases, it will remain 



58 PRODUCTION. 

true that intense, spirited, persistent labor directed 
to one point is better than the languid, nerveless, 
un spurred, rambling play of all the faculties. 

Indeed, the argument against division of labor on 
this score would be better expressed by saying, that 
the constant repetition of single acts so far dispenses 
with thought, and even with consciousness, in the 
operation, that it makes man, in some sense, a ma- 
chine. This is, to a considerable extent, true; the 
compensation being that it affords a greater oppor- 
tunity for discussion and reflection, if the workman 
chooses to avail himself of the kind of mental leisure 
which is afforded by the monotony of his occupa- 
tion. 

c. The laborer is not all workman. While his 
special occupation provides for his subsistence, and 
endows him with energy, industry, and concent ra- 
tiveness of mind and character, he has other hours 
and other duties, ample, if reasonably used, to com- 
pensate for all the evil mental effects of his contin- 
uous toil. 

It will be observed, that it is only to the division 
of labor beyond a certain point, that the objections we 
have discussed have any application. A more ill- 
developed society, with more ill-developed members, 
could not be conceived than where this principle 
was not applied to all. In fact, there could be 
neither members nor society; but here and there a 
savage would bask in the summer sun, or hide him- 
self in the storms of winter, in hopeless, helpless 
barbarism. 

However we may speculate, a priori, on the conse- 
quences of dividing minutely the parts of labor, we 



DISADVANTAGES OF DIVISION OF LABOR. 59 

may perhaps get a stronger light and a better view 
by observing the mightiest experiment of industry 
ever known in the world,— that of England to-day. 
Nowhere are the natural advantages of agriculture 
more apparent ; nowhere has manufacturing been 
more elaborated. Yet no person can be cognizant 
of the condition of the English population without 
being assured that the manufacturing, laboring class 
is far above the agricultural in intelligence, in inde- 
pendence of character, and obedience to law. 

3d. It will follow, from what has been already 
urged, that division of labor, in its greatest exten- 
sion, has a tendency, or at least there is found in it 
a liability, to lower the average of health, to shorten 
life, and prevent the natural increase of population. 

All these results are found, on examination, more 
or less, but still above the general facts of the 
country, in all the great centres of manufacturing 
industry, where the full possibilities of the mechanic 
arts are realized by the intense subdivision of labor. 
This result can only be partially and confusedly 
shown by statistics : still enough can be extracted 
to assure us that there is a great loss of vital energy, 
whether or not it is necessary to such a state of in- 
dustry. 

The American average of life may be expressed 
nearly as follows :* 



Cultivators of the earth . . . 


. . . 64 years. 


Active mechanics out of shops . 


. . 50 " 


Active mechanics in shops 


. . 47J » 


Inactive mechanics in shops . . 


. . 41f " 


Laborers, no special trades . • . 


. . 45J " 



* Massachusetts Registration of Births, Deaths, and Marriages. 



60 PRODUCTION. 

These statistics, accurately gathered and showing 
the results of many years, require correction in 
several particulars, if the real lesson of them is to 
be obtained. In the first place, two-thirds of the 
class of mechanics as presented here are engaged in 
such occupations as do not allow any very extended 
subdivision of the parts, so that the average of the 
great manufacturing establishments and their de- 
pendent cities would be found still more striking. 
In the second place, the agricultural occupations are 
continually making contribution to manufactures 
of their best blood and bone, renewing the natural 
waste of the mill and shop, and so interfering with 
the statistics of the subject. This element can 
neither be eliminated nor determined. So impor- 
tant is it at times, that Lowell appears on the 
tables as one of the healthiest cities of America. It 
is unquestionably true that much of the historical 
feebleness and mortality of such places has been 
avoided by more humane and intelligent precau- 
tions, by gymnastic sports and out door games, and 
by a better adaptation of all the conditions of produc- 
tion to the necessities of life and well-being. But the 
great fact which accounts for this seeming healthfull- 
ness of a manufacturing city is the constant infusion 
of the fresh, vigorous, young blood of the country. 

4th. The division of labor lessens the number of 
those who do business on their own account. The 
result of this, in agriculture, is to absorb the yeo- 
manry into the class of those who labor by the 
day or month, with no interest in the land. The 
result in manufacturing is to subordinate hundreds 
of operatives to the control of a single will. This 



DISADVANTAGES OF DIVISION OF LABOR. 61 

has a threefold relation : a. To the formation of 
character. Something of independence and self-re- 
spect is unquestionably lost, so far as these depend 
on external conditions. Position and responsibility 
do foster and strengthen manliness and self-mastery. 
By the division of labor, the independence of each 
is sacrificed to the good of all. It will not be 
doubted, that, on the whole, it is desirable that it 
should be so; nor can it be denied that there are 
partial drawbacks, even in this plain tendency of 
civilization. It is the sacrifice man has to make in 
society, in industry, in government, b. To the fair- 
ness of remuneration. A very few now participate 
in the profits. The great bulk of workmen receive 
only wages, and that on temporary engagements. 
This disproportion may be excessive, and is likely 
to be where laws or institutions check enterprise, 
and discourage individual effort. In such cases, 
laborers are practically a herd of cattle, driven about 
from place to place, receiving bare subsistence, and 
unable to mend their condition. But, even if we 
come forward from the barbarous state to that in 
which the work of man has divided itself into 
numerous trades, each of these, however, yet re- 
maining distinct, and compare this with the present 
state, in which trades have been repeatedly subdi- 
vided, — capital aggregate and labor subordinate, — 
we shall yet find that the share of the poorest laborer 
in the mighty product of our industry of to-day is 
greater than ever before. Augustus, says Arbuth- 
not had neither glass to his windows nor a shirt to 
his back. 

Thus much could be urged of the wretched t 

6 



62 PRODUCTION. 

operatives on the earth ; but, when we regard the 
condition of labor as it exists in nearly all the coun- 
tries of the world, we shall quickly confess, that, 
though the laborer has given up his share of profits, 
he receives back, as wages, far more objects of desire 
than he could have obtained in the old way. c. To 
the steadiness of employment. By the attraction of 
labor to great centres, the fate of many laborers is 
made dependent on that of a few capitalists. This 
is a great fact, scientifically and historically. It 
must continue. It has issued, in the past, in the 
form of great industrial distresses, of a general sus- 
pension of mechanical labor from causes affecting 
only the mercantile credit of the employers, of frantic 
appeals for support, of laws in which government 
assumes the duty of providing work for its whole 
population, of riots and revolution. So far as this 
will occur in spite of prudence and careful manage- 
ment, it is the condition on which we have the ad- 
vantages of division of labor. 

Where capital is concentrated, it is stronger, pro- 
tects itself better; and, of course, the workman 
shares in this power and immunity. Where the in- 
dustry of thousands is controlled by the mind of 
one, it will be more intelligently and harmoniously 
administered, and with a larger view of the busi- 
ness. By such superiority of union in production 
(for that is synonymous with division of labor), the 
industry of a country is lifted clean over obstacles 
which individual enterprise could not pass, — is pre- 
served amid storms that would shatter the feeble 
fabric of single hands. 

But when the blow becomes so heavv as to shatter 



DISADVANTAGES OF DIVISION OF LABOR. 63 

even the great workshops of modern industry, and 
they come down, then truly the fall is great. The 
ruin is more complete than if the storm had pros- 
trated a village of huts. The reservoir of gathered 
power has burst ; the springs have long since been 
broken down ; the wells been tilled up; and there 
is no supply for immediate wants. Such a loss is 
repaired slowly. Independent has been discouraged 
by collective industry; the shop has been abandoned 
for the mill ; each workman has learned only the 
fraction of a trade; no one can buy, make, and sell; 
no one dares to undertake any business, foreseeing 
that the corporation must rise again. For awhile, 
all is distress. It is only when the stately fabric of 
associated industry is reared again that plenty is 
known in the land. 

We have discussed, somewhat at length, the rela- 
tions which division of labor holds to the condition 
of the laborer, by depriving him of the opportunity 
to do business on his own account. Until recently, 
it has been supposed that the advantages of the 
principle could not practically be obtained without 
this defect; that capital could not be concentrated, 
and the trades perfected, without diminishing the 
independence and self-reliance of labor. But recent 
developments seem to be anticipating the objection. 
It is now a matter of common practice to admit the 
laborer to an interest in business, — a share in profits. 
This is done by merchants to their salesmen, by mas- 
ter-mechanics to their workmen, by ship-owners to 
their hands. 

5th. This system, as it necessarily occasions the 
concentration of the laboring classes, and thus 



64 PRODUCTION. 

affords opportunities for intercommunication, natu- 
rally gives rise to labor combinations and strikes, 
— a subject to be discussed hereafter. 

We have passed through the discussion of the ad- 
vantages, the limitations, and the disadvantages of 
the division of labor. 

If, now, we inquire on which side the balance lies, 
there will be no question that it is in favor of the 
application and extension of the law. It appears as 
the great multiplying power of modern industry; it 
has made the difference between barbarism and 
civilization ; it resides in man's being as the prin- 
ciple of help ; it is the only name that savage nature 
fears. 



CHAPTER VI. 

THE CO-OPERATION 0E CAPITAL. 

This is the second grand condition, through which 
the productiveness of labor is increased. 

We have before spoken of capital : we now pro- 
ceed to define it strictly. 

It is that portion of wealth employed in reproduc- 
tion. 

The distinction involved is an important one. 
All capital is wealth, but all wealth is not capital. 
Since it is recognized that human wants create 
others of their kind, and hence go on increasing in 
number and urgency, it is necessary that human 
efforts should find some force having a corresponding 



THE CO-OPERATION OF CAPITAL. 65 

rate of increase, by which to assist themselves in 
supplying the growing demand. Such an agent is 
found in capital which is taken out of wealth . 

A man may have much wealth, and use little 
capital. Wealth is as it is had ; capital, as it is used. 
For example, a man may live in a house w r orth thirty 
thousand dollars, and have ten thousand dollars in- 
vested in a ship, from which he derives all his sup- 
port, and which forms his capital. It may be asked, 
is not the house itself capital ? It is, so far as neces- 
sary to production, in sheltering the producer and 
his family, even with the style and comfort usual to 
such a degree of society. Beyond this, it ceases to 
be capital. It is devoted, not to the creation of 
values, but to personal enjoyment and culture; noble 
and worthy ends for wealth, but not for capital. 

We may change the supposition. The man may 
have a house worth ten thousand dollars, and ships 
to the value of thirty thousand dollars. The differ- 
ence to production will be apparent, inasmuch as his 
active capital now consists of three-fourths of his 
wealth, while before it was only one-fourth. 

It will follow from this illustration, that there is 
much of the wealth of the world which it is difficult 
to classify whether as capital or not, much in which 
the two ends unite, much in which the share de- 
voted to reproduction is doubtful. Still, this casts 
no discredit on the distinction itself, which stands 
manifest to all. 



6* 



66 PRODUCTION. 



ORIGIN OF CAPITAL. 

How does capital arise ? 

From the net savings of labor. A person who 
earns five hundred dollars a year, and places one 
hundred dollars of it in a savings-bank, or invests it 
in land or machinery or railroad stock, or anywhere 
at work, has increased his own capital and the capital 
of the country by so much. It is not what he lays 
aside for use in his own occupation merely, but for 
use anywhere. 

All capital comes in this way. A country in- 
creases in capital just in proportion to the increase 
of capital accumulated by its members. If the indi- 
viduals of a nation apply none of their net income 
to reproduction, there is no increase of the national 
capital. If they withdraw any of their capital to meet 
personal consumption, the country becomes poorer. 

Many of the considerations which pertain to the 
accumulation of capital, and the ultimate use of it, 
belong to the discussions of economic culture, or go 
further on, to the general division of " Consump- 
tion/' We have simply to do with those principles 
which apply existing capital to the wants of present 
labor. 

Capital is known as " fixed" or " circulating." 

Fixed capital consists of every description of prop- 
erty employed in production, which, from its nature, 
cannot be advantageously changed to any other use 
than that for which it was originally designed.* The 
land, buildings, and tools of the farmer, the ships 
and warehouses of the merchant, the machines and 
implements of the manufacturer, belong to this class. 



THE CO OPERATION OF CAPTTAL. 67 

They must be used for the purposes to which they 
are particularly adapted, or they have little value. 
They are fixed. The ship cannot be used as a wagon, 
or the spinning-jenny as a locomotive. 

Circulating capital, on the other hand, consists of 
those articles or commodities which can be readily 
changed from one purpose of production to another. 
Of this class are the stock and produce of the farmer, 
the money and wares of the merchant, the raw ma- 
terials of the mechanic. These are easily transferred 
from one business to another, and indeed from one 
place to another, and may be used in a great variety 
of forms. Of all these, money is the most mobile, 
as it can be changed without delay or loss to any 
occupation or locality. 

Fixed is, in its nature, more permanent than cir- 
culating capital, not merely in its adaptations, for its 
name implies that, but in its existence. The greater 
part of circulating capital — stock and materials, for 
example — is held only in the immediate view of 
transmuting or transferring or transporting.it, so that 
it shall pass into fixed capital. There, on the con- 
trary, it has taken its ultimate form. If it loses this, 
it is only bj 7 destruction. It does not intend to assume 
any higher condition. 

It is in this way that fixed capital receives the 
mighty annual additions which astonish us on the 
page of the statistician. The products of last year 
form a part of the houses, ships, railroads, and ma- 
chinery of the present. The farmer adds something 
to his stock, or his land, or his buildings. The me- 
chanic widens his shop, and multiplies his tools. 
The merchant enlarges his business, and extends his 



68 PRODUCTION. 



connections. The laborer saves something out of 
his wages, beyond the demands of immediate sub- 
sistence. It is in this way that fixed capital is in- 
creased by the contributions of circulating capital. 

In popular language, all wealth is divided into 
real estate and personal property. This distinction, 
if not scientific, is convenient for occasional use. We 
must bear in mind, however, that, while all real es- 
tate is fixed, all personal property is not circulating 
capital. Ships, machinery, and many other things 
not attached to the soil, are personal property, though 
standing in the category of fixed capital. 

PRODUCTIVE AND UNPRODUCTIVE CAPITAL. 

Is the distinction between productive and unpro- 
ductive capital real ? It has been urged by many 
writers at considerable length. It is susceptible of 
much illustration. It involves many important con- 
siderations. 

There is, however, no such thing as unproductive 
capital. There may be misapplied wealth, misused 
wealth, wasted wealth ; but capital reproduces. If 
any discrimination is necessary between that portion 
of wealth which is applied successfully to reproduc- 
tion, and that which is intended for such an end, but 
fails in attaining it, we may say that capital is that 
portion of wealth applied to reproduction, which 
secures a compensation to its owner. Whatever his 
intention, if he uses any part of his wealth without 
multiplying it, it remains wealth ; he has not made 
it capital; it may, by unproductive use, cease even 
to be wealth. Wealth put into an enterprise which 



THE CO-OPERATION OF CAPITAL. 69 

results iii nothing is no more capital than wealth put 
into a house which burns down. 

Nay, more: so far as wealth thus applied, while 
making some return, fails of securing the fair, aver- 
age remuneration of capital, it so far ceases to be 
capital. It may be wealth merged for a time; it 
may be wealth lost forever : it is not capital. 

A complete illustration of this principle is found 
in common business. Suppose a man to be pos- 
sessed of fifty shares of certain stock, par value one 
hundred dollars. The enterprise does not succeed ; 
the stock does not pay adequate dividends ; the value 
of the shares has sunk to fifty dollars. Would any 
one say that his capital, so far, was five thousand 
dollars? Clearly, it is but two thousand five hun- 
dred dollars. Half of his investment has been sunk; 
half is capital. 

But it has been urged that much capital is repro- 
ductive that does not afford a remuneration to its 
owner. For example: a railroad is projected and 
built, does not pay; its stock sinks to nothing; yet, 
though it does not pay dividends, it improves the 
industry of the country through which it passes. 

We have nothing to do, in the discussion of pro- 
duction, with any such incidental advantages, even 
if they exist. It may be that, in the consumption of 
ivealth, we shall find principles explaining the effects 
of such an investment. 

In the light of production, however, we can only 
say that, in so far as the railroad does not remuner- 
ate its owner, it ceases to be capital. So far as it 
is supposed to promote agriculture or manufactures, 
and indirectly help the industry of the community, 



70 PRODUCTION. 

it is simply on the level of the gratuitous gifts of 
Nature, — the powers of the wind, rain, and sun, or 
the courses of streams and valleys; assisting man 
unquestionably, but having no value, being neither 
capital nor wealth. A canal that does not pay for 
its building is no more capital than a river. 



CHAPTER VII. 

UNION OF CAPITAL AND LABOR. 

Having considered the two great agents by which 
all wealth is created, viz., capital and labor, we come 
to speak of their union, and to inquire under what 
circumstances it will be most effective. 

1st. "When a due proportion of each is found. 
Labor halts without capital ; capital wastes without 
labor. Which shall govern the other ? Which shall 
be the fixed quantity to which the other must con- 
form ? Labor, certainly, because it is less variable 
in amount. It can be diminished or increased but 
slowly, depending as it does on the propagation 
of the human race ; an element that is determined 
positively, in the old countries, to a very gradual 
growth, and, in new countries, has never more than 
doubled itself in thirty or forty years. Capital, on 
the contrary, is liable to very rapid fluctuations; can 
be accumulated, under favorable circumstances, with 
great ease; and can be wasted or scattered just as 
fast under different conditions. 

Labor, then, being that which is most restricted 



UNION OF CAPITAL AND LABOR. 71 

in quantity, capital must, in order to the highest pro- 
duction, conform to it. There must be as much 
capital as labor requires, not as much labor as capital 
needs. We do not put this on the ground of any 
superior rights of labor. Capital is the labor of the 
past, and has rights as perfect as that of the present. 
It is certain there should be as many tools as work- 
men needing the use of them, else some must stand 
idle. It is equally certain that an excess of tools 
will not aid in production. Capital is the instru- 
ment of labor, and should, of course, be adapted to 
the power of the laborer and the work to be done. 

What this proportion should be in any commu- 
nity, it would be impossible to declare beforehand, 
as it is even impossible to decide precisely what it 
is in fact. Still less could a proportion be deter- 
mined which capital should bear to labor in all com- 
munities. It is plain that this will vary according 
to the occupation; as, for instance, w T e have seen 
that in agriculture there cannot be so general appli- 
cation of machinery as in the manufactures; while, 
on the other hand, because its operations cannot be 
localized or made independent of the seasons, the 
number of tools is thereby greatly increased; each 
farmer requiring certain tools, yet not using them to 
their full capacity at any season, and letting them 
lie idle for months. 

The mechanic, on the other hand, while he uses a 
greater share of tool-power, has it yet so arranged 
that the tools lie idle little of the time. 

It is plain that the proportion will vary, also, ac- 
cording to the natural advantages a person or com- 
munity enjoys. 



72 PRODUCTION. 

By the census of 1860, " the real and personal 
property of the Union was valued (slaves excluded) 
at $14,183,000,000."* A calculation made at the 
Treasury Department estimates the products of 1860 
at 26*8 per cent, of the wealth of the country at that 
time. Without intending to vouch at all for the 
correctness of this estimate, it is doubtless approxi- 
mately true; and, if so, we shall be surprised, if we 
look at the large proportion of annual product to 
the accumulated wealth of the nation. If, for the 
sake of convenience, we call the annual product 25, 
instead of 26*8 per cent., we find that it amounts to 
$3,545,750,000 per annum. It certainly appears 
almost incredible that the total amount of wealth 
accumulated in the country since its first settlement 
should be only equal to four times the product in 
1860 ; but such we understand to be the statement. 
If so, it shows what an immense proportion of all 
the wealth annually produced is annually consumed. 
From these figures, too, we^may make an estimate 
of the proportion of the product which belongs to 
labor and capital. Allowing for the use of the latter 
ten per cent., in the shape of interest and rent, or 
use, the amount will then stand thus: 

Aggregate national wealth, $14,183,000,000, at 10 per cent., is 
$1,418,300,000, which deducted from the whole product, as before, 
of $3,545,750,000, will leave us the share of labor, $2,127,450,000, 
or about two-thirds of the whole. 

From these statistics, w T e find that the whole na- 
tional wealth is only equal to about seven times the 
gross earnings of labor for a single year. 

' — — - 

* Report of the Secretary of the Treasury, 1865. 



UNION OF CAPITAL AND LABOR. 73 

We have also an opportunity of comparing the 
wealth and production of the United States with 
Great Britain. The estimated wealth of the latter, 
according to Leone Levi (see his work on Taxation, 
page 6), is $30,000,000,000, or $1000 per capita; the 
estimated yearly production, $3,000,000,000, or $100 
per capita. The wealth of the United States, accord- 
ing to the foregoing figuring, and taking the whole 
population, as in 1860, at 31,443,321, is $451 each; 
while the amount of product per capita is $112 each : 
so that, while Great Britain has more than double 
the capital, she has less annual product per capita. 
This is a confirmation of the well-known fact, that 
capital and labor, interest and wages, are at least 
double in this country what they are in Great 
Britain. We must not confound the annual pro- 
duct with the annual accumulation : the latter being 
but a small fraction of the former. 

Capital should, at least, increase in a degree cor- 
responding to the increase of population. If it does 
not, labor is crippled, wages fall, and starvation 
eventually ensues. Ireland may be quoted as an 
illustration. Her soil, wrested from the people by 
conquest at different periods, from the reign of 
Henry II. to the battle of the Boyne, has passed 
into the hands of foreigners, who draw away an- 
nually all her surplus products. Population in- 
creases from year to year ; but capital does not 
increase correspondingly. Nay, even the waste of 
the soil and of implements is not fully and honestly 
supplied. 

What is the necessary consequence ? Increasing 
poverty, and ultimate starvation or emigration. We 

1 



74 PRODUCTION. 

have said that capital is formed from the annual 
savings of labor. Four million pounds a year go 
from Ireland to absentee landlords, and eight mil- 
lion pounds are taken away every year in taxes. 
The Irish people can make no savings. There can 
be no increase of their capital. Starvation or emi- 
gration is their inevitable fate.* 

Is it possible that there should be a surplus of 
capital ? 

It is evident that there may become such a sur- 
plus, if we assume that production itself does not 
expand in the mean time. G-iven a certain industry, 
within defined limits, it may become full and over- 
flowing with its accumulations. By economy and 
thrift, these multiply fast, and crowd their barriers. 
Common observation shows this to be often true, 
with the enterprises of individuals. The excess is 
transferred to other branches, or withdrawn for per- 
sonal gratifications. A seamstress, who, by saving, 
obtains a sewing-machine, has a wonderful help in 
her industry ; but a second sewing-machine would 
not assist her a single stitch. 

The same is true of special occupations. The 
limit of profitable production being reached, the 
amount of capital employed cannot well be in- 
creased. The product, being generally in the form 
of circulating capital, now flows off to other busi- 
ness, or is turned to purposes of adornment and 
culture. 

* From 9,000,000 before the famine in 1846, the population fell 
rapidly to a little over 4,000,000. At this point the equilibrium 
was so far restored that wages rose to a rate sufficient to secure to 
the laborer a decent subsistence. 



UNION OF CAPITAL AND LABOR. 75 

The same is also found true, though more rarely, 
of entire communities. States and cities sometimes 
reach the limits within which they desire to use 
capital in their traditional industries. They become 
bankers for the world, or direct their profits to sump- 
tuous houses and works of art. 

It is evident, then, that, within the bounds of 
present occupations, capital might easily attain a 
surplus, increasing as it can more rapidly than 
population. It is productive only as applied by 
labor; and therefore its production is limited by 
the capacities of labor. 

But in fact, and on the whole, the limits of in- 
dustry do not remain the sa^ie. Wants expand, as 
we have seen. Capital is relieved from its former 
employments, and goes on to new efforts. 

Yet we are not to anticipate the same rapid prog- 
ress at all times and everywhere which we see in a 
new country like our own, full of wants, and stimu- 
lated to efforts. Capital has its checks, just as popu- 
lation has. Theoretically, steady increase is certain 
in both: practically, each meets obstacles; is lost 
here, and checked there. The forces which operate 
to stay it may be briefly summed up as follows : a 
certain disinclination of capital to emigrate ; the 
lessening power of personal supervision from a dis- 
tance ; and a distrust in the administration of foreign 
laws. 

Another constant force operating against the in- 
crease of capital is found in those wants of man 
which do not look to reproduction. The desire to 
spend is just as truly in human nature as the desire 
to earn, and can be as accurately calculated. Hence 






76 PRODUCTION. 

it follows that, as the desire to earn loses power by 
capital becoming plenty and cheap, the desire to 
spend gains force. 

Yet capital, when it has supplied the demands of 
labor in its own vicinity, has gone abroad to colo- 
nize. It has carried on great wars in which it had 
no interest, has developed the resources of infant 
states, and saved old nations tottering to their fall. 
Capital has gone round the world in the same boat 
with the inspired discoverer. 

2d. The union of capital and labor will be most 
effective, when each is sure of its just reward. If 
the rights of man as a holder of property are sacred, 
and his rights as laborer equally so, the greatest 
motive to production can be secured. If otherwise, 
the creation of wealth will be restricted. Men will 
not work or save, unless sure of their reward. 

There cannot come, out of the earth or heaven, a 
blow that levels all industry in the dust so quickly 
and hopelessly as wrong done between labor and 
capital.* Pestilence, drouth, or floods do not so 
thoroughly and permanently prostrate the strength 
and hopes of a country as a breath of suspicion on 
the union of the two great agents of production. 
Then comes an antagonism, indeed, fatal to both. 
There is hardly any climate or soil so unpropitious 
that man will not struggle on, earning his livelihood 
with much endurance, and laying something by for 
the future. There is hardly any government so 
rigorous as wholly to suppress the energy of its 

* It will be recollected that production carried on by slaves is 
done wholly by capital : the producer being a chattel, the whole 
product is that of capital. 



UNION OF CAPITAL AND LABOR. 77 

people. There is hardly any taxation so exhaustive 
that something still cannot be got out of Nature for 
man. In all these difficulties, the motive to exer- 
tion is not destroyed. But if foul play or legal 
fraud comes between labor and capital and their re- 
ward, the very life of industry ceases at the thought. 
The spring of work is broken. Its admirable parts 
and its cunning mechanism are useless, motionless. 

Labor is the first to suffer. Its wants are instant, 
immediate, vital. Capital, in such economical con- 
vulsions, has the privilege of leviathan. It can dive 
down to the depths, and give up breathing for awhile. 
If labor goes under, it dies. 

It is familiar to every reader of history how the 
brutal rapacity of the Spanish conquerors terrified 
the nations of Peru and the Antilles, and shut up the 
treasures of the New World in a secrecy that even 
torture could not break. The wisdom of the man 
that owned the hen that laid the golden egg has 
been embodied a thousand times in the acts of gov- 
ernment. The result is never the enriching of one: 
it is ever the ruin of all. Wealth itself becomes 
valueless, since it has no security in possession, and 
only excites the cupidity of the common tyrant. 

3d. The union of labor and capital is most effect- 
ive when the latter is appropriately distributed. 
Capital creates no values by its own powers. It 
must be joined with labor. Somebody must use it, 
bring his personal energies to bear upon it, set it in 
motion, watch its operations, work with it. The 
farmer, the merchant, the manufacturer, must each 
bestow constant attention on the capital he employs, 
or no good will come of it. The more intense and 

7* 



78 PRODUCTION. 

vigilant the application, the more certain the return, 
the larger the profits. This is a well-known practi- 
cal principle; and from it follows that the point will 
be reached where an individual has so much capital 
under his control that his entire efforts, by himself 
and those working under his direction, are not suffi- 
cient to secure its greatest effectiveness. 

Such limitations are highly beneficial to society; 
for, were there no restrictions of this kind, were 
capital in vast aggregations equally efficient as in 
smaller bodies, the business of the world might be 
controlled, and the profits appropriated by a very 
few persons. 

The point is of great importance. Such a con- 
centration of capital as effects the highest division 
of labor, and the fittest application of machinery, is 
desirable for the interest of all : and for those pur- 
poses, and up to such a degree, capital so concen- 
trated has a wonderful power in production. But 
its aggregation, merely, is a hinderance rather than 
a help. After the two advantages spoken of above 
are once secured, capital becomes potent and bene- 
ficial just in proportion as it is distributed. By such 
distribution, it comes closer to labor and natural 
advantages. It makes use of various powers; it 
defends itself better in emergencies ; it adapts itself 
more shrewdly to peculiarities of circumstance; it 
has a keener intelligence of the public wants ; it com- 
mands a greater amount of executive talent; it 
superintends its employes with more accuracy. 

The man who is to gain by the work is brought 
nearer to it. He is w T ell served, because he serves 
himself. 



UNION OF CAPITAL AND LABOR. 79 

For a long time, it was a favorite belief with the 
American people, that corporations were the most 
efficient agents of production, even where the work 
was not so great as to be beyond individual enter- 
prise. The older wisdom of the country turns more 
and more to the smaller establishments, which secure 
full, interested personal supervision of labor. The 
English economy has always preferred these, ex- 
cept where the operations were beyond the reach of 
ordinary capital. 

4th. The union of capital and labor is most effect- 

\/ ive where there is the greatest freedom of industry. 
Whenever a population is sufficiently intelligent 

K to understand its own interests, it should be left to 
direct its own labors. Its industry should never be 
interfered with by government. In all countries 
which may be considered as enlightened or civilized, 
like the European and Anglo-American, the people 
have no occasion to look to government for direc- 
tion as to the business they shall engage in, or the 
manner in w T hich they shall conduct it. Every 
branch of industry, in a normal state of society, 
grows spontaneously out of the wants and capacities 
of the people. Tillage, manufactures, commerce, 
fisheries, spring up in the places to which they are 
best adapted. 

But our immediate topic relates, not to acts of 
government, based on a distinct purpose to change 
the general course of national industry, — which will 
be more appropriately discussed elsewhere, — but 
rather to those which impose minor restrictions ; 
directing the modes of labor, moulding the forms 
of capital, and prescribing the conditions of their 



80 PRODUCTION. 

union. All limitations of the rights and powers of 
, capital or labor, not required by the public morality 
or security, are useless and mischievous. 



CHAPTER VIII. 

ECONOMIC CULTURE. 

We shall best define the field of this agency by dis- 
cussing one of the most severely contested questions 
of political economy, viz.: 

What is the distinction between productive and 
unproductive labor ? 

The form of this question is unfortunate, and has 
caused the greater part of the confusion prevailing 
on the subject. In itself, it is of slight importance ; 
but, in the course of the discussion, a very grave 
matter has become involved with it, helping the 
understanding of neither. 

Dr. Adam Smith insisted strongly on the distinc- 
tion between productive and unproductive laborers. 
In the former class he embraced all those who pro- 
duce material objects, which are generally admitted 
to be of use and benefit to mankind. Such, clearly, 
are farmers, mechanics, and merchants, in the gen- 
eral application of their industry. Of unproductive 
laborers, he says, " In this class must be ranked some 
of the greatest and most important, and some of the 
most frivolous professions, — churchmen, lawyers, 
physicians, men of letters of all kinds, players, buf- 
foons, musicians, opera-singers, opera-dancers, etc/' 



ECONOMIC CULTURE. 81 

This somewhat extended list by Dr. Smith has suf- 
fered curtailment by almost all writers since. The 
distinction between physical and mental labor, be- 
tween direct and indirect agency in production, could 
not long be permitted to remain as founding a dis- 
tinction between productive and unproductive labor. 
It is clear that the physician who preserves the life 
and strength of the workman on the farm or in the 
shop is equally productive with him ; and that the 
lawyer by whom transfers of property are effected, 
and personal safety secured, is equally productive 
with the owner or the overseer. 

One occupation after another, " important or friv- 
olous," was withdrawn from the unproductive class, 
as prejudices disappeared in the light of a better 
philosophy, and as the part of each in the great 
economy became manifest; so that now little is left 
of that sweeping condemnation of unproductiveness 
passed by the father of the science upon the learned 
and artistic professions. Yet there is a residuum, 
which it is our purpose to notice. 

All labor, in the economic sense, is productive. 
The only office of labor is production. 

Labor is defined as the efforts of man directed to 
the satisfaction of his desires. Every effort that is 
not so directed is thrown away. It is wasted 
power,, not labor. If I spend a twelvemonth in the 
invention of a machine, which, when completed, is 
of no sort of use to any one, and for which I can 
get nothing, my exertions have been unproductive. 
I have worked enough for a reward; but, as it 
proved, my work was not directed to the satisfaction 
of human desires. 



82 PRODUCTION. 

THE FIELD OF ECONOMIC CULTURE. 

But it may be asked, Does it make no difference 
to the community what objects of labor are selected, 
and by what means these objects are attained ? Cer- 
tainly ; and, in this inquiry, we reach the field of 
economic culture, which is that education of the de- 
sires, that instruction of efforts, and that use of sat- 
isfactions, which will unite to bring out desires, 
efforts, and satisfactions in ever-increasing circles of 
industry. Here arise, properly, all the important 
questions which were formerly discussed under the 
head of productive or unproductive labor. 

Now it can be asked with effect, whether the opera- 
dancer, the physician, and the churchman are useful ; 
whether they expand the desires, instruct the efforts, 
and dispose the satisfactions of men to a constantly 
enlarging industry. 

Let us inquire closely. It will be readily granted 
that these and other similar classes may have influ- 
ence upon, or power in, production in two forms, 
either primary or secondary. 

Primary ', where a direct part is taken, an active 
agency maintained, in the creation of values. 

Secondary, when an effect is produced, which, by 
modifying human capacities or desires, however in- 
directly and in whatever degree, brings about ulti- 
mately a greater creation of values. 

For example : that great class which, in various 
offices, maintains civil justice and order, has indis- 
putably a primary influence or power by rendering 
possible the present creation of values, and by watch- 



THE FIELD OF ECONOMIC CULTURE. 83 

ing over their keeping and transfer. Government 
and the law are great agencies of production. With- 
out them, however desirous people might be of 
wealth, and however capable of effort, little or 
nothing could be produced. Robbery and violence 
would scatter and destroy what already exists, and 
a universal waste would speedily follow/ But they 
have, also, a secondary power or influence; for it is 
found that the maintenance of peace and property 
rights awakens new and increasing desires, widens 
the horizon of ambition, and stimulates everywhere 
to honest industry. Civil security is an education 
for wealth, an economic culture. 

Then that great class which teaches has both a 
primary and a secondary power and influence, — 
primary, in that it gives instruction to present labor, 
as it is struggling to-day with the difficulties of pro- 
duction ; explains chemical and mechanical laws; 
and establishes the alphabet, the written letter, elec- 
tric communication, the rules of book-keeping, and 
the art of navigation : secondary, in that the prog- 
ress of mind brings it infallibly to higher stations of 
aspiration and activity. 

The work of the physician is almost entirely of 
the primary character. He saves the lives of pro- 
ducers, and preserves their strength to labor. This 
secondary power or influence of his profession, if 
such exists, is distant and trivial. 

On the other hand, we shall add nothing to the 
dignity of the churchman or priest or minister, by 
attributing to him any direct power in production. 
Yet his part may be no less important because sec- 
ondary. The influence of religion is hardly le&s 



84 PRODUCTION. 

marked than that of race, in the creation of values. 
If its influence tend to improve the morals, and thus 
aid in the preservation of public order; to elevate 
the mind, and thus give it nobler and higher aspira- 
tions, and a better appreciation of the right uses of 
wealth, — it must be a great auxiliary to its produc- 
tion. 

That class of agencies which we have desig- 
nated as primary comes within the view of pro- 
duction. The class of secondary agencies belongs 
to the department of consumption, which treats of 
the use of wealth, so that it may bring forth more 
wealth. 

Here, in economic culture, is the point at which 
production, passing by exchange and distribution, 
comes into relation with consumption. In pure 
theory, production and consumption complete the 
economic good, which is reproduction. The harvest 
which is gained in production is sown or wasted, as 
the case may be, in consumption, to reappear in a 
more abounding harvest, or in barrenness, in repro- 
duction. Practically, however, we have to introduce 
the laws of exchange and distribution, as the agen- 
cies by which production is finished, and consump- 
tion made possible. 

We have used metaphors drawn from the chem- 
istry of agriculture to express the significance of 
economic culture. To illustrate from mechanics, 
we should say that it treats of the reaction of labor, 
No force can react except from something external. 
Labor is a force directed to an object. The energy 
with which it is to move in a new direction will de- 
pend on the temper and shape of the body on which 



THE FIELD OF ECONOMIC CULTURE. 50 

it impinges. Reproduction, then, is the rebound of 
production from consumption. 

If labor expends itself on objects that do not stim- 
ulate to further efforts or serve as instruments to 
further production, but rather debauch the energies 
and corrupt the faculties, it is evident that repro- 
duction will be lessened and debased, and the whole 
course of industry be downward. 

If, on the contrary, labor expends itself on objects 
that present fresh and urgent desires, and excite to 
renewed activities, it is evident that the course of 
production is upward; and the people will rise 
economically, with a rapidity and force, such as 
signalized the career, in the fourteenth century, of 
Florence; in the seventeenth, of Holland; in the 
eighteenth, of England; in the nineteenth, of the 
United States. 



BOOK III. 



PART FIRST-TRADE. 
CHAPTER I. 

THE PRINCIPLES OF TRADE. 

Exchange has its origin from the division of 
labor; and the further that division is carried, the 
greater extension is given to exchange. If each 
man supplied his own wants by his own work, trade 
could not exist. But, so far from this being the 
rule of industrial society, the article to which a man 
devotes all his labor may be such as he never used, 
perhaps never saw used. 

Exchange is that agency which brings a man what 
he wants for what he does not want, which fur- 
nishes gratification for his desires out of objects which 
are adapted to gratify few or none of his desires. 

As the division of labor begins in the most savage 
state, so exchange is known there. One goes into 
the woods for venison ; another, to the river for 
fish. At night, they divide. Half the fish is given 
for half the meat. Perhaps other parties are intro- 
duced. Instead of exchanging the whole of their 
fish or venison, each of the two gives a portion for 
a trinket, and another portion to the medicine man 
(86) 



THE PRINCIPLES OF TRADE. 87 

for herbs which he alone knows how to collect. We 
have here brought in exchange, not only in regard 
to the plain necessaries of life, but to the services of 
science and to luxuries. Yet all this occurs in the 
daily life of the savage. Only one went for veniscni ; 
four have venison now. Only one went fishing; 
four have fish to eat. The hunter and the fisher- 
man have trinkets and medicine they know not how 
to get. 

"Trade" is a technical term for the sum of all 
actual exchanges. It is exchange realized. 

There are several kinds of trade : 

1st. Domestic or home trade, which includes what 
is commonly known as the coasting trade. 

2d. Carrying trade, in which the carriers have no 
interest in the commodities beyond their transpor- 
tation. 

3d. Foreign or international trade, to which the 
word " commerce" is generally applied. 

These kinds of trade are subdivided into the 
wholesale, retail, and jobbing trades; and special- 
ized indefinitely as the iron, cotton, shoe trades, etc. 

Whence does trade arise ? 

From the desire which individuals and commu- 
nities have for each other's products. It is evident 
that this is essential to trade; since, if peoples pro- 
duced by themselves all they wished for, there could, 
as we have said, be no occasion for an exchange. 

To what extent can trade be carried ? 

To the extent of the surplus production of each 
individual or nation. Given the aggregate surplus 
products of all the people of a country severally, and 
we have the amount of its entire trade. Given the 



88 EXCHANGE. 

aggregate surplus products of the people collectively, 
and we have the amount of its foreign trade. 

Illustration: Suppose a community of one hun- 
dred individuals, each producing three hundred 
dollars' worth a year, — aggregate revenue, thirty 
thousand dollars. If each person desires to consume 
only one hundred dollars' worth of his own articles, 
he will have left for trade two hundred dollars' 
worth, — aggregate in the community, twenty thou- 
sand dollars. But if, after exchanging around with 
his neighbors, it is found that each member of the 
community has one hundred dollars which he does 
not wish to part with for anything he can get at 
home, we have the aggregate surplus available for 
foreign trade, ten thousand dollars. 

It will, of course, be remarked that the amount 
of surplus, in particular countries, will vary with 
the character of their products. We can suppose 
an entire people engaged in industry, of which they 
make no use themselves. In such a case, their 
trade would be to the amount of their whole pro- 
duction and their whole consumption. In fact, this 
condition of things is never realized. The nearer it 
is approached, the more general the trade. The 
more vital and primitive the articles produced, the 
greater will be the share consumed at home. Ohio 
has no such trade, proportionately, as Rhode Island ; 
not necessarily because the latter produces more, 
but that she produces more of what she does not 
want. The people of Birmingham consume but an 
infinitesimal part of the articles they produce. 

"We have here the principle that the wealth of a 
people is not determined by the extent of its trade. 



THE PRINCIPLES OF TRADE. 89 

What persons or communities will trade most 
largely with each other ? 

Other things equal, those whose productions differ 
most. 

Two tailors will not traffic much together. Both 
will trade with the shoemaker and hatter. Indiana 
will not trade extensively with Illinois ; but both 
will trade largely with Louisiana and Massachu- 
setts. Russia and Sweden will make very few ex- 
changes, because their productions are so much 
alike. Both will deal largely with the West Indies. 

What determines the character and kind of pro- 
ducts each country will afford ? 

1st. Soil and physical conformation. One will be 
a wheat-raising, another a wool-growing country. 
Each will spontaneously turn its industry in that 
direction where it will produce the greatest values 
with the least outlay of labor and capital. 

2d. Climate. From the Arctic regions to the 
tropics, from Siberia to Hindostan, is infinite 
variety, both of heat and moisture. Some coun- 
tries are deluged with twenty-five feet of water in a 
season ; others parch the year round with ten inches. 
Some are locked with frost eight months in twelve ; 
others are open the year round. 

3d. Social condition. Take, for examples, Eng- 
land and Brazil,— one distinguished for the high 
moral and mental endowments of its citizens; the 
other having a heterogeneous population, in a poor 
and semi-barbarous condition. The latter would, 
plainly, seek to enrich themselves from the sponta- 
neous yield of the soil, from the wild wealth of the 
pampas and the forests, from the precious ores and 

8* 



90 EXCHANGE. 

stones along their streams and in natural caves, 
rather than till the ground to the fertility of a gar- 
den, sink shafts into the solid rock, cast up high- 
ways upon the rivers, and work iron into the anchor 
and lancet. 

4th. Difference of race. 

This is additional to differences of social condition, 
and looks to those peculiarities of industrial charac- 
ter in the races of man, which are no less distin- 
guishable than their peculiarities of stature, com- 
plexion, and feature. These do not affect the 
degree of production only, as greater or less, but 
multiply the fashions, and complete the varieties of 
wealth. 

All the causes here enumerated conspire to give a 
great extent and activity to trade. It is in the com- 
merce of the world that we have illustrated — 

THE TERRITORIAL DIVISION OF LABOR. 

The Chinese raise tea and silk. This is their 
specialty, the form of industry to them most profit- 
able. The Cubans produce sugar; and the Sicilians, 
oranges, for the same reason. England excels all 
nations in useful manufactures; France, in those of 
taste and beauty; while the United States has its 
great industrial power in cotton and the cereals. 

Under the operation of natural laws, each country 
employs and disposes of its labor, without any arbi- 
trary enactments, in just the way most congenial 
and profitable ; in other words, in that way which 
develops its greatest industrial power, and secures 
the largest possible production. 



THE PRINCIPLES OF TRADE. 91 

Suppose, on the contrary, that we of the United 
States should determine to raise our own oranges. 
We could do so, and create a supply equal to the 
demand. The cost of one orange would probably 
be equal to the cost of raising a bushel of wheat, 
which would procure for us abroad one hundred 
oranges. The loss would be equal to ninety-nine 
out of every hundred oranges. We should force a 
certain part of the labor engaged in other pursuits 
into the business of raising oranges. The supply 
would be fully equal to the demand; for, at the 
rate of a bushel of wheat for each orange, few 
oranges would be wanted. The people would lose 
the enjoyment of ninety-nine out of every hundred 
oranges they would otherwise consume, and could 
just as well have, if allowed to pay for them in 
wheat. 

From these general considerations of trade, we 
deduce the following principles : 

1st. The individuals must produce a surplus of 
their ow T n commodities to have an opportunity to 
trade, and must trade to make it an object to pro- 
duce a surplus. Wants create wealth, and wealth 
creates wants. 

2d. That every nation is interested in the produc- 
tion of every other nation. Anything which im- 
pedes the production of any individual or commu- 
nity injures the trade of the world. The great 
Rebellion in the United States was felt, it may 
almost be said, by every human being on the globe. 
Not a consumer of cotton, high or low, civilized or 
savage, but suffered in consequence. 

3d. That this mutual interest exists between any 



92 EXCHANGE. 

two nations, whether they have direct commercial 
intercourse or not. For example: there may be a 
German principality that purchases nothing of the 
United States, yet it may purchase largely of the 
cotton yarn of England. That causes a demand for 
American cotton ; that benefits the Southern States ; 
that, in turn, helps the trade of the North; and 
that, again, the producers of the West, on whom the 
North depends for agricultural supplies. 

4th. Since, by the laws of trade, those countries 
which lie most remote from each other, and are 
most unlike in soil, climate, civilization, and ethnical 
characteristics, are most nearly united by commerce, 
it is shown, that, by this territorial division of labor, 
the most extended production and the most be- 
neficent distribution of all the commodities of the 
earth are secured ; and that, if any nation creates an 
article of peculiar desirableness, it is placed within 
the reach of all. Every invention or improvement 
becomes, in this way, the common property of man- 
kind. 

5th. That commerce harmonizes all differences in 
the industry of the world. 

11 All Nature's difference makes all Nature's peace." 

" A commercial nation," says Sir James Mackin- 
tosh, " has the same interest in the wealth of her 
neighbors that a tradesman has in the wealth of his 
customers. . . . Not an acre of land has been 
brought into cultivation in the wilds of Siberia, or 
on the shores of the Mississippi, which has not 
widened the market for English industry." And 
we may add for American industry as well. 



OBSTRUCTIONS TO TRADE. 93 

6th. That commerce diminishes the number of 
wars, and shortens their duration. 

The whole interest of commerce is the inalien- 
able ally of peace. It has not been found sufficient, 
thus far, to prevent all wars. But it enters into 
negotiations, tempers grievances, and delays vio- 
lence. 



CHAPTER II. 



OBSTRUCTIONS TO TRADE. 



These are of three kinds : 

First, physical, which are natural ; secondly, legal, 
which are conventional; thirdly, social, which are 
incidental. 

These we propose to consider seriatim, so far as 
practicable. 

1st. Physical obstacles are such as Nature inter- 
poses. They may all be expressed by the term 
location; because this includes soil, climate, and all 
other natural conditions. Circumstances, as con- 
nected with the location of different communities, 
may render trade between them very difficult, how- 
ever much they may desire commercial intercourse. 

Nations, like individuals, exchange products for 
one of two reasons : 

1st. That one produces what the other cannot; or, 

2d. That one produces more cheaply than the 
other. 



94 EXCHANGE. 

In either case, if they desire each other's com- 
modities, it is for their mutual interest to make an 
exchange. . It would, therefore, seem to follow that 
all obstructions to the exchange of commodities between any 
two countries desiring each other's products must injuri- 
ously affect the interests of both. 

It is our present purpose to inquire as to the truth 
of this proposition, which, after the discussions of 
half a century, is still a matter of grave dispute ; and 
the legislation of nations has been, and to a large ex- 
tent still is, in the direction of interposing, rather 
than removing, obstacles to commercial intercourse. 

To aid our inquiry, we shall make use of an illus- 
tration that we think will show, in a clear manner, 
and in a few words, the effects of physical obstruc- 
tions. 

Two communities, dwelling contiguous to each 
other, are separated by a lofty chain of mountains, 
which renders transportation between them so diffi- 
cult as nearly to preclude all intercourse. On one 
side the mountain, the soil is so admirably adapted to 
cereals, that wheat (and other grains in proportion) 
can be produced at the rate of one bushel for a clay's 
labor; while fuel is so difficult to be obtained, that 
six days' labor are required to produce one ton of coal. 

On the opposite side of the mountain range, so 
little is the soil adapted to the culture of grain, that 
three days' labor are required to produce a single 
bushel of wheat ; while the facilities for mining coal 
are so great, that one day's labor will produce a ton. 
Under such circumstances, it would evidently be 
quite advantageous to both countries to exchange 
products, if there were no obstacles to prevent their 



OBSTRUCTIONS TO TRADE. 95 

doing so. Owing, however, to the resistance which 
the supposed mountain interposes, the transportation 
of a bushel of wheat 's equivalent to two days' labor ; 
so that the wheat would cost three days' labor per 
bushel when brought to the coal country, and for 
that amount of labor, the inhabitants could produce 
it themselves. So of coal. To transport a ton which 
cost but one day's labor at the mines would require 
the labor of five days; and therefore the people in 
the grain country, who can produce it by six days' 
labor, would gain nothing by getting it from abroad. 
For these reasons there would be no trade or ex- 
change of products so far as those articles were con- 
cerned, except in case of some accident, as the 
failure of a crop, or an unexpected obstruction to 
the process of mining, by which the cost of the sup- 
posed commodities should be enhanced. Virtually, 
there would be no profitable trade between the two 
communities, although in one coal was six times as 
dear, and in the other wheat was three times as dear, 
as in the neighboring country. 

If, however, we now suppose a railway to be made 
which reduces the transportation of a bushel of wheat 
to one day's labor, and the freight of a ton of coal 
to three days, we shall have conditions under which 
an advantageous trade will be sure to spring up, 
since the wheat-grower of the grain country can now 
get a ton of coal for the labor of four days, thus 
saving two days on each ton, equal to 33J per cent.; 
and the coal miner can get a bushel of wheat for two 
days' labor instead of three: thus saving, as far as 
his consumption of wheat is concerned, one-third or 
33J per cent, of his labor. 






96 EXCHANGE. 

If we further suppose that the consumption of coal 
in the wheat-growing country is five hundred thou- 
sand tons per annum, two days' labor being saved on 
each ton, the total saving will be one million days' 
labor per annum. If the consumption of wheat in the 
mining country be two million bushels on each of 
which one day's labor is saved, the total saving in 
the two countries will be three milion days' labor 
per annum. 

What we find true here, in principle, must be true 
in all similar cases. Both parties gain largely ; and 
the fact that the miners gain two millions while the 
wheat-growers gain only one, is no good reason why 
the latter should decline a trade that saves them a 
million a year. The result, in this respect, is analo- 
gous to the operation of the late Reciprocity trade 
between the United States and Canada, which, 
while highly advantageous to the former, was still 
more so to the latter. 

We must inquire as to the general effects of these 
increased facilities for trade. 

PRODUCTION WILL BE INCREASED. 

First. As each of the supposed countries will now 
have an equal quantity of coal and wheat for less 
labor than before the obstacles were removed, the 
large amount of labor so released will of course be 
employed in the production of new commodities, 
and industry will flow into new channels. This will 
be done, not from compulsion, but from choice, and 
therefore will take the most profitable directions. 
The labor of each community, in the case supposed, 



OBSTRUCTIONS TO TRADE. 97 

will act under new and greatly improved conditions, 
because, — 

(a) In the mining country, the expense of support- 
ing the laborer in consequence of the diminished 
price of wheat, will so reduce the cost of producing 
coal, that, other things equal, the miner w r ill obtain 
a larger profit, and the laborer higher wages. More 
commodities being produced, there will be a larger 
amount to be divided between the parties producing 
it, of which the laborer will receive a larger share 
than before. 

(b) In the agricultural community, on the other 
hand, the large reduction in the price of fuel will not 
only liberate a large amount of labor and reduce the 
expenses of living, but afford facilities for the use 
of steam power in manufactures and the mechanic 
arts, which will now be introduced as fast and as far 
as profitable. Thus the industry of both countries 
becomes more and more diversified. Wants in cer- 
tain directions being supplied with less labor, more 
of the general industry may be employed in furnish- 
ing other objects of desire. 

Do we not here discover the principle upon which 
the occupations of a people become diversified, and 
the way in which this is brought about in an eco- 
nomical manner under the unobstructed operation 
of the laws of trade, without the smallest sacrifice on 
the part of any class or interest? It is the sponta- 
neous expansion of a nation's untrammelled industry. 

HOW TRADE ENRICHES NATIONS. 

Again, we here also ascertain the principle upon 
which trade enriches nations. Each party obtains 

9 



98 EXCHANGE. 

more by exchanging than by producing, because 
each produces that for which it has the most com- 
plete adaptation and the greatest facilities. Each 
nation, in fact, works for the other at a more profit- 
able rate than it could work directly for itself. With 
uninterrupted trade this must be true of all coun- 
tries, at all times, aud under all circumstances. 

Furthermore, can it make any difference to the 
wealth of nations whether the obstacles preventing 
their exchange of products are those existing in 
nature or interposed by governments ? If, in the case 
of the two countries in question, after an interchange 
of products has been established by the construction 
of a railroad, the government of one or both should 
impose such heavy tolls upon transportation as to 
raise its cost as high as before the railroad was built, 
would not the effect upon trade and industry be the 
same as if the railroad itself were destroyed ? 



CHAPTER III. 

LEGAL OBSTRUCTIONS, OR GOVERNMENTAL INTERFER- 
ENCE WITH THE GENERAL INDUSTRY BY TARIFF 
DUTIES. 

These may be imposed for one or more of four 
reasons : 

1. To raise a revenue. 

2. To encourage the growth or manufacture of 
certain commodities at home. 



PROTECTION. 99 

3. To support or maintain existing forms of pro- 
duction. 

4. To secure commercial independence by isola- 
tion, or independence of commerce. 

1st. To raise a revenue. So far as this is only a con- 
venient way in which the State can collect a certain 
sum of money it must have, it is but a mode of taxa- 
tion, with which we have no present concern. So 
far as it affects the industry of the country by chang- 
ing its direction to the production of articles that 
cannot be raised or made at a profit except by being 
raised above their natural price, it becomes an ob- 
struction to trade, or what is called protection. 

We have not thus far used the term protection, 
because in this connection it has a technical mean- 
ing, designating a system of restrictive measures on 
the part of the government intended to force the 
industry of a people from its natural channels ; and 
we now use the term under protest. 

Protection has been defined to be, " the establish- 
ment of such duties on foreign goods as will protect 
or cherish domestic industry. 

We accept this as a correct definition of what the 
protective system claims to be ; namely, an aid to the 
general industry of a nation ; not to a part, but to 
the whole ; not of one class, but of all classes. And 
this is the particular point of our present inquiry. 
This is the field in which protection joins battle of 
choice with freedom of industry. In all the other par- 
ticular reasons its argument is, as we shall see, linked 
with some real or fancied necessity; but here protec- 
tion takes ground freely and fairly, and proposes 
to do this by tariffs. Of these we will briefly speak. 



100 EXCHANGE. 



TARIFFS. 



A tariff is " properly a list or table of goods with 
the duties or customs to be paid upon the same/' — 
Webster. From their general characteristics, tariffs 
may be divided into two kinds : namely, those im- 
posed solely for revenue, and those laid intentionally 
in such a manner as to restrict the importation of 
certain articles with a view T to cause their manufac- 
ture or production at home. The first is properly 
called a revenue or free-trade tariff, since it is not- 
intended to, nor does it in fact, diminish trade. 

It may be objected to this last statement that any 
duties, since they must increase the cost of com- 
modities to the consumers, must necessarily dimin- 
ish consumption. Is this true ? 

Suppose the amount of one hundred millions must 
be raised to meet the wants of government, and that 
this is done by direct taxation. Then those who pay 
the taxes will have one hundred millions less of 
means wherewith to purchase commodities, and 
their trade must be reduced to that extent. Sup- 
pose the same amount of one hundred millions be 
raised by tariff, then the cost of the commodities 
taxed will be raised one hundred millions, and con- 
sumers must purchase one hundred millions less 
than they otherwise might. In either case, the 
ability of the tax-payers to purchase will be reduced 
one hundred millions, and the trade of the country 
would be as little affected in one case as the other. 

So far as mere trade, therefore, is concerned, it 
matters but little whether the supposed one hun- 
dred millions be raised by a revenue tariff or direct 



PROTECTION. 101 

taxation. The result of this mode of taxation, it 
may be observed, is not to interrupt the industry 
of the country, like restrictions upon trade, but 
only to lessen the satisfactions of the tax-payers. 

The protective system, on the other hand, is de- 
signed to diminish foreign imports, and to direct 
the industry of the country into new channels, into 
the production of articles which will not pay a profit 
unless raised in price; and since they can only be 
raised in price, by the additional cost, or amount of 
labor required to produce them, the general production 
must be lessened to the extent of the extra labor re- 
quired to furnish the protected articles. 

Since the trade of a people depends upon produc- 
tion, it is influenced by taxation only so far as it di- 
minishes their ability to produce. A strictly revenue 
\/*tariff, therefore, like any other form of taxation (un- 
less so excessive as to encroach upon production), 
has no disturbing influence upon trade, and in no 
way conflicts with the largest development of a 
nation's industry and the widest extension of its 
commerce. It preserves perfect freedom of exchange 
with every part of the earth. 

^Economically, it will ever remain true, that the 
government is best which governs least. The wants 
of a people are the sole proper, the sole possible, 
motives for production. Nothing can be substituted 
for them. Anything that seems to take their place 
is merely a debasement of them. The interests of 
producers, whether laborers or capitalists, secure, 
better than any other possible means, the gratification 
of such wants. Their intelligence is always superior 
on such points to that of any foreign body. These 

9* 



102 EXCHANGE. 

we believe to be absolute affirmations of universal 
experience, not dependent on reasoning, not conde- 
scending to argument. 

General proposition : There is no sense so subtile 
as that with which a man detects his own wants. 
There is no spur so sharp as that which urges him 
to satisfy them. 

If, then, protection is founded on false economical 
principles, we should expect to find it working 
mischief in its application to national industry, per- 
verting the desires, crippling the efforts, and plun- 
dering the satisfactions of society. 

Since the subject is of great practical importance 
and of great popular interest, we will take an illus- 
tration at length from the history of American in- 
dustry, exhibiting the principles thus far attained. 

We choose the manufacture of iron, for six rea- 
sons: 

1st. Because it may be produced in great amount 
in our own country, and is found in almost all others. 
There is, therefore, nothing of the nature of a mo- 
nopoly about it. 

2d. Because it enjoys the largest natural protec- 
tion arising from its weight and bulk. 

3d. Because it is one of the most simple of all 
manufactures. 

4th. Because it has been tried on a large scale, 
affording material for great inductions, and freeing 
the results from any imputation of accident. 

5th. Because the public attention has been turned 
to it for a long time, and it is better understood 
than any other we could name. 

6th. Because a stronger argument can be made 



PROTECTION. 103 

in favor of governmental intervention in its behalf 
than any other. 

What is the fact in regard to the manufacture so 
described? At present, iron cannot be so cheaply 
and extensively produced in the United States as to 
exclude the foreign article. Why is this? We 
answer negatively : 

1st. Not that we do not know how to make it. 
Being, as has been said, the most simple of all 
manufactures, we have had, from the earliest set- 
tlement of the colonies, the necessary knowledge, 
and have produced it from our colonial days. 

2d. Not that we have not sufficient capital. No 
branch of business is more accessible than iron- 
making, or requires less capital proportionally. 

Besides, a successful business, once started, creates 
its own capital. Labor no more seeks assistance 
from capital, than capital employment by labor. 
Every year of profitable enterprise affords a sur- 
plus, which can be applied to the increase of busi- 
ness more efficiently than twice the amount of raw 
capital, coming in the lump. The daily or monthly 
increments are applied with an aptness and a 
promptness that make them far more useful than 
wholesale, occasional accessions of capital from 
abroad. 

3d. Not that we have not the best natural facili- 
ties for the manufacture. 

Five great conditions of success are found most 
remarkably in the United States, — (a) Our ore is 
not only of excellent quality and most abundant, 
but (b) is found very generally on the surface and 
(c) in proximity to the best river navigation, and 



104 EXCHANGE. 

almost always in close juxtaposition to (d) coal for 
smelting, and (e) limestone for flax. Perhaps in 
no other country of the world are these requisites 
so fully secured. The absence of a single one of 
them might be sufficient to destroy the prospect 
of production. 

4th. Not that the manufacture here lacks good 
natural advantages. America has been put at a 
great distance from Europe. The effects of this 
we have already seen. The foreign product is, 
in this case, charged with freight and insurance 
for a voyage of three thousand miles. 

Why, then, with all these facilities, do we not 
produce all our iron without governmental coer- 
cion ? There is but one reason. 

We can do better. We can obtain a part of 
our iron with less labor than by making it. 

How can this be ? Because, though we have 
facilities for making iron, greater perhaps than 
any other people, we have still greater facilities for 
raising agricultural products. 

We can raise forty bushels of wheat with, say, 
twenty days' labor that will purchase a ton of iron, 
to produce which would cost twenty -five days' labor: 
net saving, five days, or twenty per cent, on all our 
iron. 

What is the explanation of this state of things? 

Land is an instrument, and the greatest of all, in 
producing agricultural values. Good arable land, 
on which wheat is raised in England, is worth, say, 
two hundred dollars an acre. 

In this country, the same is worth, perhaps, twenty 



PROTECTION. 105 

dollars.* Then, with our price of land, we have the 
advantage, so far, over the European, in the produc- 
tion of crops, of nine-tenths, or ninety per cent. Our 
capital in land is ten times as productive as that of 
England. On the other hand, we have not an equal 
advantage over the European in making iron ; for, 
although it costs him more labor (and labor is, as 
we have said, the chief item in making iron), that 
labor costs him much less per day than it costs us ; 
say, at least, fifty per cent less. So that, if it is esti- 
mated to cost him twice as much labor to make iron, 
still labor costs him no more in money than ours 
costs us. In respect of labor, then, we are on a 
level. 

So far as money, as capital, is concerned, the Euro- 
pean again has the advantage of us by fifty per cent., 
since money is as well worth eight per cent, here as 
four per cent, there. 

Now, these facilities which the European has, from 
the cheapness of labor and capital, counterbalance 
to a great extent, if not fully, the advantages which 
we have from the ease with which we can get the 
materials of which iron is made. 

If so, in getting our iron by raising wheat, we have 
the net advantage over the European of ninety per 
cent, in the land, which is the great item of expense 
in such products. 

Such is the situation. We will now apply protec- 
tion. Government, in 1816, laid a duty of thirty 



* Often not a fourth part of that sum. The government holds 
the best wheat land at one dollar and twenty-five cents, and gives 
it awav to actual settlers. 



106 EXCHANGE. 

dollars per ton on bar iron ; equal to about fifty per 
cent, on the cost of the foreign article. Let us in- 
quire into the effect of this policy. 

1st. More iron was produced. Labor and capital 
were at once withdrawn from other occupations, and 
invested in furnaces and iron-making. 

2d. A great loss was caused to the general produc- 
tion of the country. If labor and capital were with- 
drawn from pursuits of ordinary profitableness, and 
invested in business that required fifty per cent, pro- 
tection to make it profitable, does it not follow that, 
on the whole amount made under the forced system 
of production, there was a loss to the country of 
thirty-three and one-third per cent.; 'thirty-three and 
one-third per cent, of ninety, the enhanced price, 
being fifty per cent, on sixty, the original price?* 

3d. Many wasteful and disastrous experiments 
were made. When any branch of industry grows 
up naturally, it commences upon a small scale, and 
is cautiously extended, as found profitable. Under 
a forced system, it is quite otherwise. A duty of 
thirty dollars a ton is laid upon iron. 

Pennsylvania is full of iron ore and coal. What 
prevents her from making a vast sum by it ? Has 
she not a protection of fifty per cent? So every- 
body reasons ; so everybody acts. Great establish- 

* It should be understood that there can be no greater discount 
than one hundred per cent , which takes the whole of anything • 
yet there are men who profess to be learned and even well versed 
in financial matters, who speak very flippantly of two hundred or 
five hundred per cent, discount. They confound discount with 
premium. The first is limited to one hundred, the latter is illimi- 
table. 



PROTECTION. 107 

ments are started at once. There is no occasion 
longer to consult adaptations of character, experience 
in business, or local economy. Merchants, profes- 
sional men, farmers, mechanics, all are seized with 
the mania of iron-making. Large iron works are 
hastily and ignorantly got up. They are managed 
by incompetent men, worked by inexperienced hands, 
they turn out imperfect iron, with inevitable loss and 
final insolvency. 

And the iron interest clamors loudly and success- 
fully for more protection. These are not accidental 
or peculiar results, but natural and certain, where 
the great laws of trade and the even course of pro- 
duction are disturbed. 

Such were the actual facts in regard to the manu- 
facture of iron in this country, and they illustrate 
in the most clear and forcible manner the legitimate 
results that must ever attend all efforts to force the 
industry of the nation into unnatural channels, or 
stimulate a branch of production, which, as in the 
case of iron, as just stated, had already been success- 
fully started, was gradually extending and prosper- . 
ing as much as other industries. 

But it may be urged that, if a part of the labor 
of the country had not been taken from agriculture, 
its products would have declined in value, and this 
would have counterbalanced what was lost by the 
manufacture of iron. 

The markets of the world being open to us, all 
our surplus products would remain in demand. Pro- 
visions, especially, are a sort of " legal tender " the 
world over; and there seems to be no immediate 
occasion to anticipate their disuse. 



108 EXCHANGE. 

If there were no other markets open but those at 
home, there would be a certain tendency, not at all 
frightful in its vehemence, to a decline of prices, in 
a country like ours ; because an agricultural people, 
under favorable circumstances, always produces 
more than it consumes, and would, sooner or later, 
create such a surplus as to lower the price, and as 
soon as wheat had fallen so low that it required as 
many days' work to get a ton of iron by raising 
wheat as by working the ore, the manufacture would 
be successfully introduced. That is precisely the 
point at which this branch of industry would legiti- 
mately begin, and every other desirable manufacture 
be successfully started. 

A striking illustration of the sad effects certain 
to follow protection, or any extraordinary and un- 
natural stimulus given to a particular branch of 
industry, has been afforded by the paper interest in 
this country. 

The late war created an immensely increased de- 
mand for paper, and it advanced to an exorbitant 
price. This caused a rapid extension of the busi- 
ness, and mills were erected in all parts of the coun- 
try. Peace came, the extra demand fell off, while 
the number and capacity of the mills having been 
largely increased, they were prepared to supply a 
greater amount than was required, even during the 
war. Over-production was the consequence; a ruin- 
ous fall of prices, general stagnation; and when a 
great freshet in Massachusetts, in 1869, swept off a 
large number of these establishments, the event was 
hailed as a fortunate circumstance, as undoubtedly 
it was, to the trade. The destruction of property a 
blessing! 



FALLACIES OF PROTECTIVE THEORY. 109 



CHAPTER IV. 

FALLACIES OF THE PROTECTIVE THEORY. 

We now pass from the consideration of the prin- 
ciples of protection, to illustrate their application. 
We believe we have shown the unsoundness of that 
political philosophy which proposes to substitute 
sf artificial for natural laws, in production.* But there 
remains some popular arguments, often sincerely 
urged, which we will now notice. 

PROTECTION OF INFANT MANUFACTURES. 

Fallacy 1st. It is claimed as good policy to protect 
"an infant manufacture" until it is w T ell established, 
because it will then take care of itself and ultimately 
confer great wealth on the country. 

This may be called the primary fallacy, because the 
first announced and most successfully advocated. It 
was not contended, during the early period of tariff 
legislation (say from 1816 to 1828), that protective 
duties were not a heavy tax upon consumers, but 
that they were temporary, and would in a short time 
secure the object sought, and be then discontinued ; 
and it was only a belief in the truth of this assump- 
tion which secured the enactment of the first tariffs. 

In reply to the argument for protecting an infant 
manufacture, it may be remarked : 

(a) There is no assurance, under a system which 

10 



110 EXCHANGE. 

removes the sole test of usefulness and self-support 
from the production of a people, that enterprises 
will not spring up which never will come to matu- 
rity, which have no vital force of themselves, which 
exist solely by reason of the protection, and will 
never become remunerative. If good enterprises, 
why not bad, since the test of bad or good has been 
withdrawn ? Thus the whole industry of a country 
may become perverted and falsified by removing the 
principle of natural competition. There will be no 
reason for healthful industries to spring up, which 
will not also give life to such as are weak, tardy, 
ephemeral ; to such as are parasitic and exhausting. 

(b) Other things aside, the desirableness of raising 
the " infant" will depend very much on the length 
of time and total cost required to bring it to full age 
and size. 

France protected one of these industrial infants; 
i.e. the beet-sugar culture. Dr. Wayland said of it, 
in 1837, " The present protection costs one million 
and four hundred thousand pounds per annum. 
Suppose this to continue for twenty years, it will 
amount to no less than twenty-eight million pounds 
sterling; the interest of which, at five per cent., will 
bring, at two and a half pence per pound, one hun- 
dred and twenty-six million pounds of sugar, or 
nearly the whole annual amount of sugar now con- 
sumed in France." In 1871, we can say that this 
child, born in the early part of the great Napoleon's 
career, has not yet become strong enough to walk 
alone, or hardy enough to take the air. Supposing 
an equable annual consumption of any article, it re- 
quires but common school arithmetic to show that a 



FALLACIES OF PROTECTIVE THEORY. Ill 

protection to the extent of fifty per cent., continuing 
for eighteen years, would amount to a sum which, at 
six per cent, interest, would furnish the nation in 
thrat article to the end of time, without ever paying 
anything more for it. 

What has been the success of this system of legis- 
lative protection in the United States? Beginning 
with 1820, we find, in the five following decades, 
that the average duties on dutiable goods were (see 
Wells's Report, 1869, page 144) : 

1820 to 1830 38 per cent. 

1830 to 1840 33 

1840 to 1850 .28 

1850 to 1860 . 23 

1860 to 1870 38J 

Average duties for fifty years . . . . 32 

" " " last five years . . 45 J < 

" " » 1870. ..... 47 

Such has been the protection given to our indus- 
trial proteges for the last half century, and yet we do 
not find that they have arrived at that degree of 
strength and maturity at which they are content to 
be left to competition with foreign producers. They 
still make strenuous exertions to maintain the pres- 
ent high rates of duties, and in many cases to increase 
them. 

(c) Finally, no sound and healthful manufacture 
needs protection at all. The phrase " infancy " is 
entirely sophistical, as applied to any branch of legit- 
imate industry. Each one comes full-grown and full- 
armed into life. We do not mean that it has no 
growth, as far as extension is concerned. It certainly 
does go on from town to town, from State to State, 



112 EXCHANGE. 

out of small beginnings. But there is no infancy, 
so far as completeness or robustness of life is con- 
cerned. 

A remarkable confirmation of the truth of these 
remarks is found in the history of the boot and 
shoe manufactures of the United States. They 
never asked for protection; never received any 
notice in all the conflicts for increased tariffs. 
The trade grew up naturally, steadily, and profit- 
ably from the first; increasing gradually, with the 
growth of the county, until, at the present time, 
it is not only the largest, but one of the most profit- 
able branches of manufacturing industry. In Mas- 
sachusetts alone, this manufacture extends to near 
one hundred million dollars annually, and is by 
far the most advantageous branch of industry in 
the State. 

It is no exaggeration to say that hundreds of 
millions of dollars have been sunk in the cotton 
and woollen business in this country, in consequence 
of the unnatural stimulus given by tariff legislation, 
which has induced at different times a too rapid 
extension of those branches of manufacture. The 
boot and shoe trade has lost nothing in that way. 

DEVELOPMENT OF MANUFACTURES. 

Fallacy 2d. That protection especially develops 
manufactures; and manufacturing countries are 
found to be in fact richer than those more ex- 
clusively agricultural. 

Both propositions are true in an isolated form. 

Other things equal, in a normal state of things 



FALLACIES OF PROTECTIVE THEORY. 113 

manufacturing communities are older than agri- 
cultural, and, of course, have much greater ac- 
cumulated wealth. England is older and richer 
than the United States ; Massachusetts than Ohio. 
Manufactures arise because a people have a dense 
population, abundant capital, and great industrial 
activity. Under such circumstances, great wealth 
will be created, because these are the fit conditions 
of creating wealth. 

It is, without question, true, that in an equal 
manufacturing population will be found a greater 
accumulation of wealth. One important reason 
of this is, that a larger share of the population 
are engaged in production, and a larger amount 
of capital is employed. Women and children, who 
could earn but little in agricultural labors, can earn 
much in manufacturing. This is one of the most 
striking results of a division of labor, as we have 
already shown. As we carry on agriculture, women 
and children do little, though in Continental Europe 
they do much. Agriculture, too, can be performed 
only in certain portions of the year. Manufactur- 
ing need never stop, summer or winter, cold or hot, 
fair or foul. This makes a wonderful difference. 

All these, however, are economical advantages, 
which manufacturing communities have, when prop- 
erly constituted and employed. These are reasons 
which may induce such industry; never reasons 
why it should be compelled. 

There is a principle always operating to bring 
manufactures out, on every part of the earth's sur- 
face. It is the impossibility of carrying on certain 
branches anywhere but at the place where the article 

10* 



114 EXCHANGE. 

is wanted. It would be within bounds to say that 
four -fifths of all the present consumption of manufactures 
would be supplied by our national industry, irrespective 
of protection. 

RAISING THE RATE OF WAGES. 

Fallacy 3d. That high tariff duties, by excluding 
foreign commodities and causing their production 
at home, raise the rate of wages, and thus benefit 
the laborer. 

Without entering upon the question whether 
tariff duties, however high, can have such an effect, 
it is sufficient to say that this assumption ignores 
the important consideration that the laborer is a 
consumer as well as a producer; and that he con- 
sumes as much in value as he creates. Yet such is 
the fact. If he does not actually consume from day 
to day all he earns, if he lays up a part, and finally 
invests it in a house or other property, the result is 
the same to him ; for whatever he purchases will be 
equally advanced in cost by the supposed rise in 
wages, since every kind of property being produced 
by labor must rise equally with the rate of wages, 
and therefore the laborer can gain nothing by a rise 
of prices occasioned by tariff* taxation, even if it did 
raise the general rate of wages. So far from being 
benefited by duties imposed for the purpose of 
forcing industry from one branch of production to 
another, the actual wages of the laborer, as meas- 
ured by the commodities he can get in exchange 
for them, must be diminished. 

To many minds it seems quite clear that, when 
the laborer in America and the laborer in Europe 



FALLACIES OF PROTECTIVE THEORY. 115 

are engaged in producing the same commodity, and 
the wages of the latter are but half those of the 
former, if the European is allowed to send his com- 
modity free of duties to this country, the home 
laborer must be driven from his employment, or 
his wages be reduced to the same rate as those of 
the foreigner. 

The fallacy of this may be seen by the following 
illustration: " Suppose pig-iron at the furnace in 
Pennsylvania to be $24 per ton, and $24 in Wales ; 
the wages of the Pennsylvanian might still be $3 
per day and in Wales $1 per day, because it would 
require only eight days' labor to quarry the ore and 
coal on the surface in Pennsylvania, and twenty- 
four days to haul it up from the deep mines of 
Wales.'' This statement, which corresponds quite 
truly to the facts in the case, shows conclusively 
why it is that wages in this country may be double 
and treble what they are abroad, and yet we may 
compete successfully with the foreigner. 

DEFENCE AGAINST PAUPER LABOR. 

Fallacy 4th. That the introduction of foreign fab- 
rics that come into direct competition with our own 
must reduce the American to the same miserable 
condition as the foreign laborer. 

This is doubtless a most effective and popular ap- 
peal in favor of excluding European manufactures. 

That labor is lower in all other countries than in 
the United States, is universally admitted ; that in 
some communities laborers are so oppressed as to 
be reduced to nearly a state of pauperism, is also 
well known ; and in view of these facts, it is asked, 



116 EXCHANGE. 

with great emphasis, whether we shall admit these 
poorly paid laborers into competition with our own? 
whether we shall reduce our workingmen to a level 
with those of less favored countries? On this point, 
there is but one opinion. All agree that nothing 
should be done to degrade the condition or lower 
the compensation of the American laborer; and the 
only matter in dispute is, whether permitting the 
latter to purchase the commodities of the former, 
because they can be had at a less cost, will have the 
assumed effect. If this can be shown, the argument 
is at an end. If, on the other hand, the very reverse 
of this is true, then the position taken by protec- 
tionists falls to the ground. 

The question of higher interest to the laborer of 
every country is, how he can procure the largest 
amount of the commodities he w r ants, with the 
smallest amount of his own efforts. It matters not to 
him whether the foreign laborer works for ten pence 
or ten shillings per day: it is the quantity of that 
laborer's products he can command in exchange for 
his own labor that alone concerns him. He is neither 
better nor worse off because the laborers of another 
country live in comparative poverty. Daniel Web- 
ster, in 1820, made the following impressive re- 
mark : " We cannot afford to do with our intel- 
ligent labor what paupers can do as well for us." 

So far as the native laborer is concerned, the 
lower the rate of foreign wages the better; for, as a 
consequence, he gets a larger amount of the foreign 
product in exchange for his own. This may be a 
misfortune to the foreign, but is certainly no dis- 
advantage to the home laborer. 



FALLACIES OF PROTECTIVE THEORY. 117 

In the great competition of universal industry, 
which countries have most to fear, — those in which 
wages are high, or those in which they are low? 
Neither, in truth, has anything to fear on account 
of the clearness or cheapness of the other's labor, and 
therefore it cannot be good policy for any nation to 
preclude the introduction of foreign commodities for 
such a reason. 

HOME MARKET. 

Fallacy 5th. That a home market should be created 
for agricultural products, by restricting the impor- 
tation of manufactured articles and causing their 
production in this country, thus placing the manu- 
facturer by the side of the cultivator of the soil. 

This is a very pernicious, because a very plausible 
and delusive fallacy. It was this idea that led Mr. 
Calhoun and his friends to inaugurate the tariff in 
1816. They wished to secure a home market for all 
their cotton. They tried the experiment, and found 
that the whole consumption of the United States was 
not, and could not be, equal to more than one-third 
of their cotton crop, and therefore that they lost far 
more than they gained by the restrictive policy. 
Efforts have been made to induce the belief that the 
people of the Western States would be especially 
benefited if such restrictions were laid upon trade as 
to insure the production at home of all manufactures 
wanted for consumption, and thus create a home mar- 
ket for all their products ; but experience would show 
them that the home demand could never be made 
equal to the productions of their prairies. Our terri- 
tory is so vast and so fertile that we must produce 



118 EXCHANGE. 

the largest surplus of breadstuff's, provisions, cotton, 
and petroleum of any people on earth, and this sur- 
plus will increase with the increase of population. 
For this surplus we must have a foreign market, or. 
our own growth as a people will be greatly retarded. 
Therefore a large export demand for all these pro- 
ducts is of the first importance. Not only shall we 
produce a large surplus, but whatever that surplus is 
worth will determine the price of all the crop, 
whether of corn or cotton. Upon foreign markets 
we must depend, and should therefore interpose 
as little obstruction to trade as possible. This 
would not at all prevent, but rather accelerate, the 
normal and healthy growth of manufactures at the 
West, the great natural section for agricultural 
products. 

EXHAUSTION OF THE SOIL. 

Fallacy 6th. That the exportation of breadstuff's, 
cotton, and other agricultural products fatally ex- 
hausts the soil, and therefore a home market should 
be created, so that this result may be prevented. 

It is true, other things equal, that the constant 
carrying away from the soil its fertilizing properties 
w T ill gradually reduce its productive power. It is 
also true that in every new country the earliest 
settlers rely entirely upon the natural fertility of 
the earth. It is all the available capital they have. 
It is well that they can do this, because having every- 
thing to do, and but little to do with, — dwellings, 
roads, bridges, school-houses, churches, and other 
private and public wants to provide for, — if nature 
were not thus kind, their progress would be slow 



FALLACIES OF PROTECTIVE THEORY. 119 

and difficult. This has ever been the case in all new 
settlements. 

But what succeeds to this primitive condition of 
things? When the original fertility is exhausted, 
when the people have acquired so much wealth as 
to be a.ble to attend to the actual cultivation and im- 
provement of the soil, they invariably commence the 
art of true agriculture, by various processes of fertili- 
zation. The result always has been, always will be, 
that old countries that have been long cropped are 
the richest in their fertility. Instance Great Britain, 
and every other country where persons and property 
have been made secure by law. 

PROTECTION OF CAPITAL. 

Fallacy 7th. That the home capitalist is especially 
benefited by protective duties which shut off com- 
petition with the cheaper capital of the foreigner. 

This is a very common but mistaken opinion. If 
it be for the interest of the laborer, as we have en- 
deavored to show, that the rate of wages should be 
lower abroad than at home, it must be equally for- 
tunate for the capitalist that the rate of interest in 
other countries is lower than in his own ; because in 
exchanging his products, or that which has been 
created by the use of his capital, for commodities 
created with cheaper capital, he will have the same 
advantage we have seen to inure to the laborer. If 
the rate abroad is but half what he receives, he ob- 
tains twice as many commodities for the use or em- 
ployment of his capital as he otherwise could do. 
The laborer and capitalist stand on precisely the 



120 EXCHANGE. 

same platform ; and their interests are in this case, 
as in all others, in perfect unison. 

FREEDOM OF EXCHANGE ESPECIALLY BENEFICIAL TO 
THE MERCANTILE AND TRADING CLASSES. 

Fallacy 8th. That unrestricted trade benefits the 
mercantile and trading classes only, at the expense 
of all others. 

This idea, by whomsoever entertained, is but a 
short-sighted and incorrect view of the matter, since 
the amount of foreign or domestic trade can only be 
as the amount of production ; and therefore, if obstruc- 
tions to trade do, as we insist, necessarily diminish 
production, then they injure not only the producing 
classes, but the trading and transportation classes as 
well. 

Besides the direct producers, the laborers and 
capitalists of the nation, a third class of persons is 
found to whom the question of freedom of exchange 
is of great importance ; viz., the entrepreneurs, the 
mercantile, trading, and transportation classes, who 
stand between the producer and consumer, and 
through whose hands by far the greatest part of the 
products of a nation must pass before they are finally 
disposed of in use. 

If it be true that the fewer the obstacles in the 
way of exchanging commodities, the greater will 
be the production, and of course the larger the field 
of commercial operations, then we shall find that the 
interests of this middle class are quite in harmony 
with those of which we have previously spoken. The 
business of the merchant must be extended or con- 
tracted just in proportion to the extension or con- 



FALLACIES OF PROTECTIVE THEORY. 121 

traction of the general production of the country in 
which he resides. 

If, then, as we have endeavored to show, the re- 
moval of all obstacles to the most unrestricted com- 
mercial intercourse is for the interest of the laborer, 
the agriculturist, and other classes connected with 
production and exchange, — as these must constitute 
an immense majority of the entire population, at 
least nine-tenths of the whole, — the conclusion is 
irresistible that the general industry of any people 
is best protected by entire freedom of intercourse 
with all mankind, whether paupers or princes. 

PROTECTION IS A WAR OF INTERESTS, 

which necessarily introduces internecine strife be- 
tween the different industries of a country; and the 
further the policy is carried, the more severe the an- 
tagonism. Whenever government interferes to favor 
one industry by raising the price of its products, it 
does so, of necessity, by taxing all other interests. 
If prices are raised, somebody must pay the advance. 
When the price of coal, for example, is enhanced by 
a duty oti the foreign article, every manufacturer in 
the nation who uses coal pays a tax to the miner. 
The interests of the miner and coal consumer are 
brought into collision, and one must suffer that the 
other may be benefited. 

If government interferes to obstruct the trade in 
iron, every mechanic in the nation, to whom it is 
raw material (and it is so to a numerous class of ar- 
tisans), is injured in his business. There are proba- 
bly at least a hundred different industries for which 
iron, in some of its forms, is the raw material ; and 

11 



122 EXCHANGE. 

in the aggregate these are many times larger than 
the production of the iron itself; yet all must bear 
the greater cost of the article which forms the basis 
of their operations. Their power to compete with 
the foreigner is reduced to the whole extent of the 
duties they are compelled indirectly to pay. 

Besides all this injury to the general industry, 
every consumer of iron (and who is not such directly 
or indirectly?) is brought into a position of antago- 
nism with the iron producer. The former is injured 
to a greater extent even than the latter is benefited. 
There is no escape from this conclusion. Protect 
the domestic wool-grower by a duty upon the foreign 
article, and at once the woollen manufacturer justly 
complains that his business has been interfered with, 
because he wants a free opportunity to get a supply 
of the foreign article as low as it can be had in Eng- 
land or any other country, otherwise he cannot 
compete with the foreign manufacturer. Thus a 
direct war of interests between the wool-grower and 
woollen manufacturer is commenced, destructive to 
both. If a duty is laid on wool, the manufacturer 
certainly suffers : if, to counteract this, a duty is laid 
on foreign fabrics, both parties are injured, and the 
entire community is laid under onerous burdens. 

Perhaps the most striking instance of the col- 
lision of interests arising from attempts to favor a 
particular branch of industry is found in the case 
of the home duties laid to favor the manufacture of 
steel. " The whole number of persons engaged in 
the direct manufacture of steel in the United States 
is not, as the Special Commissioner of Revenue in- 
forms us, in excess of three thousand five hundred ; 



FALLACIES OF PROTECTIVE THEORY. 123 

while the number of those who use steel as a raw 
material for the manufacture of axes, chisels, files, 
cutlery, spades, shovels, pistols, machinery, and 
other tools and implements, is not less than two 
hundred thousand ; while an addition of those in- 
directly interested in having cheap steel would 
swell this number to one million five hundred 
thousand." 

Now if it were true that the duties upon steel 
advanced the wages of the three thousand five 
hundred laborers employed in producing it, must 
not the business of the two hundred thousand per- 
sons using steel as a raw material be correspond- 
ingly depressed? Would not the latter, being many 
times more numerous, lose more than the former 
gained? That such was the view of the case taken 
by those who used steel as a raw material, we know 
from actual information, personally obtained from 
one of the largest manufacturers of cutlery in the 
United States. We heard him remark that the 
heavy duties upon steel operated greatly to his dis- 
advantage ; and if Congress would remove those 
duties, he did not need any protection whatever, 
nor ask auy favors. 

The result would seem to be that if the protec- 
tive duties on steel benefit three thousand five hun- 
dred laborers engaged in producing it, they must 
injure two hundred thousand persons employed in 
working it, and one million five hundred thousand 
connected with their operations ; while they impose 
an oppressive tax upon a population of thirty-eight 
millions. 

In this last specimen of governmental intermed- 



124 EXCHANGE. 

dling, we have a striking illustration of the certain 
effects of all measures designed to favor particular 
interests. 



CHAPTEE V. 

protection {concluded). OTHER obstructions 

CONSIDERED. 

Legal protection, as we have already said, may 
be imposed from one or more of four general 
reasons. 

We have discussed the two first, viz.: 

To raise a revenue. 

To encourage the growth of certain commodities 
at home. 

"We now come to the remaining reasons, which 
will demand but little attention, as their principles 
have already been developed. 

1. To support existing manufactures. 

Here we leave the expediency of founding special 
industries by a system of protection, and confine 
ourselves to the question, whether such industries 
having been begun and developed under high tariffs, 
capital having become so engaged, labor having be- 
come so employed, it is not necessary to continue 
the protection. 

So far as this acknowledges a moral obligation 
on the government to save from loss those who 
have followed the guidance of its laws, it is a ques- 
tion for the statesman. But the economist can urge 



PROTECTION. 125 

that, if the burden of such bad investments must be 
borne by the public, it would be preferable to have 
it assumed in the shape of direct relief to the manu- 
facturers, rather than by a system which is sure to 
multiply such unfortunate enterprises, and perpetu- 
ate their weakness. That great caution and for- 
bearance are necessary, in removing even a false 
institution, is not a maxim which economy has to 
teach politics. 

THE PRACTICAL DIFFICULTY. 

And here we come face to face with the great 
practical difficulty of protection in our country ; 
that which, if all its principles were triumphantly 
proved in general reasoning, should still throw it 
out of our legislation. If it were proved harmless, 
if it were proved beneficial, there is a strong reason 
against ever attempting to realize it here. That 
difficulty resides in the varying politics of our 
country. Injurious as protection is to the best 
interests of the country, any system of it, however 
severe, would be preferable to the "open-and-shut" 
policy, absolutely unavoidable in a government like 
ours. It is not within the bounds of reason to sup- 
pose that the alternate successes of parties will not 
continue to convulse our national legislation ; and 
therefore it is with emphasis true, that a persistent 
system of protection is only possible in a govern- 
ment with great conservative force and great central 
powers. 

2. To secure commercial independence. True com- 
mercial independence is attained by any nation, 
when its natural resources are so developed and 

11* 



126 EXCHANGE. 

cultivated that it becomes a power in the world, 
can command the products of the industry of every 
climate, because it can furnish that which all others 
want. This is independence in commerce. Inde- 
pendence of commerce is the independence of the 
savage. 

But it is claimed that such a separation from all 
offices of kindness is necessary to protect nations in 
w r ar. So far as the state urges the claims of its own 
safety, the principles of economic science must be 
silent. But this interference with the laws of value, 
for the preservation of the national life, must be 
strictly limited to the absolute necessities of war. 

But the argument for protection from the neces- 
sities of war has almost disappeared in the intenser 
light of our growing civilization. The independ- 
ence of each nation in commerce, existing harmoni- 
ously with its dependence on commerce, forms the 
best hope of peace and tranquillity for the future. 
It may be safely assumed that the probabilities of 
war between any two peoples are inversely as their 
commercial relations. 

THE FINAL ARGUMENT. 

But, after all argument has been closed on the 
principles of protection, we still find one plea re- 
maining. If freedom of intercourse, it is said, were 
only universal, it w r ould be well; but, since it is 
not, each nation must protect itself, and do as it is 
done by. 

If England should exclude our wheat, she would 
raise the price of the article at home ; that would 
necessarily increase the expense of living with her 



PROTECTION. 127 

working classes; that would cause a rise of wages, 
that would enhance the cost of making iron, and all 
other commodities; and that would make it more 
easy for us to compete with her in producing every 
article we need, and hasten the time when we should 
supply ourselves. 

Let us suppose that England refuses to take our 
wheat. Would that be a good reason why we 
should not take iron from her, if we get it so, 
cheaper than by making it ? We have already 
shown that the protected suffers more than the 
excluded community. 

What advantage is there in refusing to buy of a 
nation because it refuses to buy of us? It is re- 
taliation and revenge, not self-defence or self-vindi- 
cation. The most wise and useful economical act 
of this century was that by which, by the exertions 
of Mr. Cobden, England and France, so long con- 
tending only in exclusions and mutual injuries, 
threw open their ports to the free entry of hun- 
dreds of articles, to the common benefit of both, 
and to the advancement of good feeling and hearty 
alliance ; a measure that, between the years 1859 
and 1863, increased by seventy-three per cent, the 
trade of Great Britain with France, while proving 
no less beneficial to the labor of the latter country. 

We infer, from all that has preceded, that " pro- 
tection^ is an unfortunate expression. To restrict 
industry, to put the bad on the level of the good, 
to remove from industry its only guaranty of a full 
reward, to contract trade and neutralize the gifts 
of Nature, is not protection, in any proper sense 
of the word. It is spoliation. 



128 EXCHANGE. 



OBSTRUCTION TO TRADE BY A DEFECTIVE STANDARD 
OF VALUE. 

Governments cannot only restrict trade by heavy 
and discriminating duties on foreign goods, but 
also by establishing or permitting a false standard 
of value through a redundant and consequently 
depreciated currency, which, of necessity, prevents 
the exportation of many articles that might other- 
wise be advantageously produced in the country. 

The consideration of this question more properly 
belongs to another department of our general sub- 
ject, and we present it now only that it may be 
recognized as one of the many ways in which gov- 
ernments unintentionally, but not the less effect- 
ually, diminish commerce and retard domestic man- 
ufactures. 

The principle involved may be briefly stated as 
follows: A depreciated standard of value raises the 
cost of all domestic products and the rate of wages 
as measured by it, and of course increases the cost 
of home manufactures to such an extent that they 
cannot compete with forign products at home,'Or be 
advantageously sent to those countries that have a 
correct standard of value. 

The practical operation of this principle is abun- 
dantly shown by the fact that in 1860, when our 
currency was at par with gold, we exported of our 
domestic manufactures $47,160,000, while in 1868 
the amount was but $37,856,723. But the effect is 
still more strikingly seen in the case of our cotton 
fabrics, the exports of which amounted in 1860, 



PROTECTION. 129 

under a currency at par with gold, to $10,934,796 ; 
while in 1868, under a depreciated currency, they 
were but $3,479,324,— a falling off of nearly two- 
thirds, while, according to the rate at which they 
previously advanced, they should have trebled. No 
demonstration of the truthfulness of our position 
could be more complete than is afforded by the 
tables from which we quote. Indeed, it would 
seem that no proof in the case could be needed, 
since the principle is self-evident and needs only 
to be stated. 

TRANSPORTATION OBSTACLES. 

A new and serious obstacle to the general trade 
of the country has presented itself within the last 
few years, in the heavy railroad tolls imposed in 
consequence of extensive combinations by managers 
of different naturally competing lines, who are thus 
enabled to establish exorbitant rates for freight. 

This has already become an evil of great magni- 
tude, and is evidently increasing with the constant 
extension of railroads and the increase of these com- 
binations, so that the industry of some sections of 
the country is already sensibly affected by it. The 
results of these monopolies are twofold : 

1. They discourage production ; for when it takes 
the value of one bushel of wheat to get another 
bushel to market, the inducement to raise wheat is 
diminished : so of all other products. The conse- 
quence is, that farmers cannot afford to cultivate 
their least productive lands at all, except so far as 
they consume their own products. 



130 EXCHANGE. 

2. To increase the cost of products at the place of 
exportation is to diminish trade, especially foreign 
commerce. All that is excessive in tolls is just so 
much protection to the agriculture of other coun- 
tries. If it cost ten or fifteen cents per bushel more 
to transport wheat from Iowa to New York than it 
ought, the wheat- grower on the shores of the Black 
Sea, who competes with the American producer in 
the markets of Europe, has the full advantage of it, 
and will increase his production and profits accord- 
ingly. 

Duties upon exports which come finally into com- 
petition with foreign productions are justly consid- 
ered injurious to the industry and trade of a country ; 
but excessive tolls have the same effect, besides 
being more objectionable from the consideration 
that, while duties would go into the public treasury, 
and constitute a part of the national revenue, and 
thus relieve the whole people of a part of the public 
burdens, tolls only enrich the few who own or man- 
age railroads. 

SOCIAL OBSTACLES. 

Another mode in which trade may be interrupted 
is by what we have termed social obstacles. We have 
also called these incidental, there being no original 
intention to affect the direction of labor. These 
often have the same influence upon production and 
exchange that physical or legal obstructions occa- 
sion. A most impressive illustration is found in the 
results of the war of the Rebellion in the United 
States. The production and sale of cotton in this 
country were for a time greatly hindered, almost 



PROTECTION. 131 

annihilated. This caused an immense advance in 
the price of that article in India and Egypt ; and 
this, of consequence, greatly stimulated production 
and speculation in those countries, especially in 
India, where the culture had been comparatively un- 
profitable. Under the encouragement thus afforded, 
it became far more advantageous than any other 
branch of industry. India increased in wealth with 
surprising rapidity, and a great industrial revolution 
was effected. But it was at a heavy expense to all 
other peoples and countries. What India gained 
Europe and America lost, the former as consumer, 
the latter as producer. The wealth of the world was 
not increased by all this, but largely diminished, and 
healthy commerce widely deranged. 

Even India itself has not been permanently bene- 
fited by the extraordinary demand for cotton. The 
return of peace in the United States, bringing down 
the price of her great staple, caused extensive bank- 
ruptcy and general commercial distress, greater than 
ever known before. Thousands of the population 
starved to death in consequence of the culture of rice 
having been abandoned for that of cotton. 






132 EXCHANGE. 



CHAPTER VI. 

BALANCE OF TRADE. 

What is meant by the balance of trade ? 

An actual balance of trade is the difference be- 
tween the amount of values exported and the amount 
of values imported. This seems a very simple prop- 
osition ; yet the question is one of great complexity, 
from the fact that it is difficult to determine with 
certainty whether the exports of a nation do or do 
not actually equal the imports. Superficial observers 
resort to the financial returns made to the govern- 
ment; and finding, for example, that the imports of 
1854 amounted to $304,562,381^ while the exports 
were but $278,241,064, leaving a difference of 
$26,321,317, they hastily conclude that the balance 
of trade was against this country to that amount. 
Such a conclusion would not have a sufficient foun- 
dation. 

To understand this subject, we must notice that 
the exports are stated at their value at our own 
custom-houses, while the amount imported is stated 
at the value in foreign countries. If we suppose 
the amount exported in 1854 w T as on American ac- 
count, and paid a profit of only nine per cent, on the 
custom-house valuation, we shall find that it will 
amount to $25,041,695, a sum very near the assumed 
balance , and, if so, the commodities exported actu- 
ally paid for the amount imported, and the supposed 
unfavorable balance is annihilated. As the goods 



BALANCE OF TRADE. ' 33 

exported should sell for enough abroad, and as they 
do generally sell for enough to pay all charges of 
freight, insurance, etc., with reasonable commissions, 
say in all fifteen per cent., we may justly infer that 
there was, in fact, a balance in favor of this country 
in 1854. But the question whether there was or 
was not an actual balance that year can only be 
determined by ascertaining whether our exports gen- 
erally sold for an advance sufficient to pay for the i n- 
ports. This is known only to those engaged in o • 
familiar with the results of the export trade of 1854. 
The balance might have been greater or less than 
what it appears from custom-house statistics. 

On the other hand, in 1855, our exports exceeded 
our imports by $13,688,326. Does that show a bal- 
ance in favor of the United States? Apparently; 
yet there might have been a loss upon our exports 
which would more than balance the $13,688,326. 

Although the financial tables of the Secretary of 
the Treasury do by no means decide the balance of 
trade, and the custom-house returns are never con- 
clusive evidence, yet there are cases in which there 
is no reasonable doubt on which side the balance is. 
In 1836, for example, we exported one hundred and 
twenty-eight millions, and imported one hundred 
and eighty-nine millions; an excess of sixty-one 
millions, making a difference of sixty per cent, over 
exports. In this case, there could be no doubt there 
was a larger actual balance against the country, be- 
cause the profits could not have been equal to the 
excess. So too, to go further back, in 1816 the ex- 
ports were fifty-two millions; imports, one hundred 
and twelve millions; excess, sixty millions, or more 

12 



134 EXCHANGE. 

than one hundred per cent. The unfavorable bal* 
ance in both cases caused great distress by the 
necessary exportation of specie. 

BALANCE OF TRADE — HOW ADJUSTED. 

If the commerce of a country is in a really pros- 
perous condition, the value of its imports will, in 
the long-run, exceed its actual exports, because its 
export trade should pay a profit. ]STo country is 
enriched by trade, unless its aggregate imports do 
exceed in value its exports. It is no matter whether 
the excess of imports over exports is brought into 
the country in specie or any other desirable com- 
modity, provided its own currency be a true standard 
of value. 

The trade of the United States for 1863 showed 
the following results : Exports (Financial Report, 
1864), $350,152,125; imports, $252,187,587; bal- 
ance, $97,864,538. The returns also showed an ex- 
port of gold to the amount of $82,364,482, an import 
of gold of $9,584,105, giving a balance of $72,780,377. 
A considerable part of this gold was, doubtless, sent 
abroad for safe keeping by timid capitalists, and not 
over-loyal citizens. The large balance of seventy- 
two millions in favor of the United States was no 
indication of a profitable trade that year; quite 
otherwise. The balance of gold exported in 1864 
was ninety-one millions. Another fact, that throws 
additional conjecture upon the apparent balance of 
trade, is, that false invoices are used to an enormous 
extent at our American custom-houses. Whenever 
duties are charged upon the cost of the commodities, 



BALANCE OF TRADE. 135 

it is an object to have them invoiced as low as pos- 
sible. Fraudulent invoices are often made out abroad 
and sworn to by the importers here, and thus the 
actual value or amount paid for the foreign merchan- 
dise is not accurately exhibited. The Revenue Com- 
missioners (see their Report to the Secretary of the 
Treasury, January 29, 1866, page 45) estimate that 
the frauds at the New York Custom-House alone 
are from " twelve to twenty-iive millions annually. ,, 
The aggregate of these frauds throughout the country 
has been estimated as high as forty millions per an- 
num ; but, if they amount to only thirty millions, 
the " balance of trade" is seriously influenced by 
them. 

Many considerations of this general character 
might be brought forward ; but sufficient has al- 
ready been said, we trust, to show what the real 
nature of a balance of trade is, and how difficult a 
matter it must always be to determine with ac- 
curacy upon which side it actually is, and what its 
amount. 



PART SECOND -INSTRUMENTS OF EXCHANGE. 



CHAPTER I. 

BARTER AND THE DIFFERENT FORMS OF CURRENCY. 

We have discussed the principles upon which 
exchanges are made. We now come to consider 
the instruments by which they are effected. 

These are of three kinds: 

1st. Barter. 

2d. A common medium, or currency. 

3d. Different forms of credit. 

No person produces everything he wishes to con- 
sume. Even in the savage state, men will obtain 
different products, as they have skill and oppor- 
tunity. These they w T ill exchange among them- 
selves in kind. 

As the civilized state appears, the necessity for 
interchange of commodities increases, and barter, 
or exchange in kind, becomes a very inconvenient 
and clumsy mode of effecting the desired object. 
For example, the farmer may wish to exchange 
wheat for a hat ; but the hatter is already supplied : 
what, then, will the hatter accept? A table. The 
farmer must then go to the cabinet-maker, and offer 
his wheat for a table. But the cabinet-maker is 
supplied with wheat. He would, however, accept 
a pair of boots. The farmer applies to the boot- 
maker, who happens to wish for wheat and accepts 



BARTER AND CURRENCY. 137 

the offer. With the boots the farmer gets the table, 
and with the table gets the hat which he desired. 

In such a state of things, this was the only process 
by which exchanges could be effected; circuitous, 
and expensive in time and labor, as it was. 

We might have supposed a far more difficult 
case; but this is sufficient to illustrate the incon- 
venience of barter, or the direct exchange of com- 
modities. But there is still another difficulty, of 
scarcely less magnitude. When articles to be ex- 
changed became numerous, it would be found a 
very intricate matter to establish satisfactorily the 
relative value of each. For example, how many 
sheep shall be given for a cow? How many cows 
for'a horse? How much corn for a bushel of wheat? 
How much butter for a gallon of molasses? How 
many eggs for a pound of tea, sugar, or coffee? 
How many of any or all of these for a cart, plough, 
spade, chair, table, etc., through an interminable 
series of exchanges? 

Under such circumstances, there could be no 
such thing as price, because there would be no com- 
mon standard, to which the value of all articles 
could be referred. 

What, then, was wanted ? Evidently, some article 
which all persons, either by common consent or the 
force of law, shall accept for whatever they have to 
sell, and by which they will measure the value of 
anything sold. 

That article would perform two important func- 
tions ; viz., it would be an instrument of exchange, 
and a standard of value : in other words, it would 
be money. 

12* 



138 EXCHANGE. 

"We learn the true nature of money, then, from 
its origin and the functions it performs. These 
offices or functions we must examine in detail. 

1st. As a medium of exchange. This may be 
wholly conventional. Anything, which, by general 
consent or in obedience to law, all receive in ex- 
change, will answer the purpose. So far as this 
function is concerned, it is of no consequence 
whether the article has value or not: safety and 
convenience are the only considerations of impor- 
tance. Money, in this respect, is simply a counter, 
token, or universal equivalent. 

2d. As a standard of value. Value is not con- 
ventional. It attaches to all objects which are de- 
sired, but cannot be had without effort or labor. 
Since the value of anything is its power in exchange, 
we say that nothing is valuable which will not com- 
mand labor, or that which costs labor. 

11 Value implies comparison, appropriation, estimation, measure. 
In order that two things should measure each other, it is necessary 
that they be commensurable; and, in order to that, they must be 
of the same kind." — Bastiat. 

Therefore, if we would measure value, we must 
use an article that has value in it. The measure 
must evidently have the same quality as the thing 
to be measured, — weight to measure weight, length 
to measure length, volume to measure volume, value 
to measure value. 

The standard must be as nearly invariable as pos- 
sible. An absolutely invariable standard is unat- 
tainable, because the standard itself must be subject 
to the same laws as the objects to be measured; 



BARTER AND CURRENCY. 139 

that is, cost of production, supply and demand, etc. 
Hence we must take that for a standard, which, on 
the whole and in the long-run, is subject to the 
least fluctuation. Of all objects of this kind, we 
shall see that the precious metals are the least liable 
to great and violent changes in value. 

In examining the principle of barter, we were 
forced, by its practical difficulties, to accept the re- 
source of a universal equivalent for all commodities. 
This, in its original form, is money. But the course 
of civilized industry has introduced several forms of 
such an equivalent, of which the money, by which 
men first escaped from the difficulties of barter, is 
only one. All these forms are classed as currency; 
and therefore, in discussing the instruments of ex- 
change, next after barter we come to the subject 
of— 

CURRENCY. 

This is a general term for all the contrivances by 
which society seeks to effect a general exchange 
of values, and discharge pecuniary obligations. 
There are four distinct kinds or species of cur- 
rency, each differing from the others in important 
particulars: 

1st. The first of these instruments is called 
money. Any article, which, having a universally 
recognized value in itself, all persons accept as an 
equivalent, or medium of exchange, and which, 
consequently, becomes the standard by which all 
other values are measured or determined, and in 
which all pecuniary obligations are expressed and 
discharged, is money. Being composed generally 



140 EXCHANGE. 

of the precious metals, it is often known as "hard- 
money currency/' but is more properly a value cur- 
rency. 

2d. The second kind of currency consists of 
written promises, made usually by governments, 
to pay money at a distant or indefinite period, 
which nevertheless, by force of law or other cir- 
cumstances, are accepted as money, and perform 
its general functions. The notes issued by the 
treasury of the United States, and familiarly known 
as " greenbacks," now in circulation, are of this 
description. They form a strictly credit currency, 
but, in common parlance, are called paper money. 

3d. A third description of currency is formed of 
written promises to pay specie on demand, issued 
in excess of the actual amount of specie, or money, 
in possession of the promisors absolutely held for 
the redemption thereof. These notes or promises 
are generally issued by corporations, called bank- 
ing institutions, and circulate, while current, as 
money, performing all its functions. This is called 

a MIXED CURRENCY. 

4th. A fourth kind of currency consists of written 
promises, payable on demand, issued by responsi- 
ble parties, for the payment of which, in full, the 
specie is actually held in trust by the promisors. 
As such a currency is precisely adapted to all the 
wants of the trading and business classes, and fully 
combines convenience with safety, the two great 
desiderata, it may with great propriety be called a 

MERCANTILE CURRENCY. 

Of the four kinds of currency, it will be observed, 
that two, the first and fourth, are classed as value 



MONEY. 141 

currency; the second, as credit; the third, as mixed, 
consisting of value and credit. 

To obtain a clear and intelligent view of the sub- 
ject, it is therefore quite necessary, that we divest it 
of all its usual environments and. associations, and, 
for the time being, even of the forms and terms 
with which we are familiar, and regard the question 
as abstractly as possible. 



CHAPTER II. 



I. MONEY. 



Having examined the nature and functions of 
currency, we shall now speak of the actual money 
of commerce, or the universally accepted equivalent. 

In all ages and countries, this has consisted of the 
precious metals, .gold and silver, with the baser 
metals or alloys for fractional purposes. Local cur- 
rencies have been various. Lacedsemon had iron 
money. The Romans are supposed by many to have 
used cattle and sheep in the early periods of their 
history; and their coins bear the images of those 
animals, as indicating their value. Tobacco was 
once currency, and a legal tender, in Virginia. 

The first currency legally established in Massa- 
chusetts was bullets. The ''General Courte ordered 
[March 4, 1635] that bulletts of a full boare shall 
passe currently for a farthing a peice, provided that 
noe man be compelled to take above 12 d at a time." 



142 EXCHANGE. 

Again, it was enacted "that merchantable beaver 
shall pass at X s the pound.' 5 In 1637, the " Courte 
ordered that Wampumpege should pass at six for a 
penny, for all sums under 12V In 1640 and 1641, 
additional laws were enacted, making wampum a 
lawful tender. 

Many expedients like these have, at different 
times and in different countries, been adopted to 
secure a temporary and partial currency; but from 
the days of Abraham, who paid "four hundred 
shekels, current money with the merchants, for the 
field of Ephron," to the present time, the money 
used in commerce has always been composed of 
gold and silver. These, and these only, have formed 
the universal medium of exchange and standard of 
value 

The use of these metals arises from nothing con- 
ventional. No international agreement was ever 
made respecting them ; yet they are everywhere 
and at all times, without hesitation, received in ex- 
change for whatever any one may wish to dispose 
of. They secure their currency simply b} 7 their 
peculiar adaptedness to the purpose. 

"What their peculiarities are, we propose now to 
consider. 

1st. They possess value, that is, have power in ex- 
change. They cost labor, and are objects of desire. 
They cannot be had without labor, or an equivalent. 
They are subject to all the laws of value as truly as 
wheat or any other commodity. 

2d. These metals are stable in value; that is, the 
most so of known commodities. They are subject 
to no violent changes, like flour or cotton : for ex- 



MONEY. 143 

ample, wheat often varies from twenty-five to fifty 
per cent, in a few months. They change in value, 
indeed, from age to age; but so gradually is this 
accomplished as to be quite imperceptible at the 
time. 

3d. They are conveniently portable; the most so, in 
fact, of all commodities existing in adequate quan- 
tity. 

4th. These metals are malleable. They can be 
wrought into any shape, will receive and retain any 
impression, may be divided into the minutest quan- 
tities, and again united, with the smallest possible 
loss. 

5th. They are of uniform quality. Gold and silver 
are always and everywhere the same. Found in Cali- 
fornia, Australia, or Russia, gold is everywhere gold. 

6th. They may be readily alloyed or refined. By 
alloy they are made harder, and so adapted to use 
as money. However alloyed, they can easily be 
restored to their original purity without loss. 

7th. They are indestructible by accident. Fire does 
not consume them; atmospheric influences cause no 
decomposition : so that the gold and silver in use 
in the time of the Ptolemies may form a part of the 
currency of the world to-day. 

8th. They are universally appreciated. The precious 
metals are regarded as beautiful and desirable in all 
countries, and among all races, civilized or savage. 
The demand for them is without limit. 

9th. They are generally diffused. These metals are 
found in every principal section of the globe, — Eu- 
rope, Asia, Africa, North and South America, and 
xlustralia. 



144 EXCHANGE. 

10th. They are sufficiently plentiful. Not more than 
two-thirds of the gold and silver now in the posses- 
sion of man is believed to be used as money, the 
balance being in plate or other objects of utility and 
ornament. 

11th. They are nearly inconsumable by use. The use 
of almost all other commodities causes their rapid 
destruction. Articles used as food or clothing, for 
example, disappear entirely in a comparatively short 
period. Even iron, as used for most purposes, — in 
railroads, agriculture, the mechanic arts, etc., — lasts 
only a few years. With gold and silver it is quite 
different, though the exemption from waste is more 
remarkable in the case of gold. Indeed, its ordinary 
and principal use can scarcely be called consump- 
tion, it is so gradual. 

It has been ascertained, from data carefully ob- 
tained in the Bank of England, that gold in coin 
loses only 4-16 per cent, in one hundred years, or 
about one per cent, in twenty-five years. 

Investigations made at the United States Mint, as 
by Report of 1862, showed that the wear and tear of 
gold and silver used as coin was only as 1 to 2400 ; 
that is, it cost but one dollar to keep 2400 dollars in 
circulation. Gold half-eagles only as 1 to 3500 per 
annum. 

When used for gilding and similar purposes, it is 
much more rapidly consumed ; but the amount so 
employed is very small, in comparison with the 
whole mass. When used in plate, the consumption 
is even less than in coin ; and a larger part of that 
which goes into jewelry returns into bullion in the 
lapse of time. 



MONEY. 145 



COINAGE. 



Having seen how admirably adapted the precious 
metals are for use as aione3 T , we pass to a considera- 
tion of those artificial arrangements by which they 
are still farther and more completely fitted for that 
purpose. 

At first these metals were used in ingots and bars, 
and passed by weight. Whenever a pecuniary 
transaction was made, scales were required to deter- 
mine the quantity given in exchange. This was a 
clumsy and imperfect mode of pajrnent ; for there 
would arise the question of quality as well as quan- 
tity, — of the pureness or fineness of the metal. This 
could only be ascertained by assay ; and that could 
be accomplished only by persons having the neces- 
sary knowledge of metallurgy, with apparatus for 
conducting the process. 

It was therefore natural, that, at an early period, 
a contrivance was hit upon which obviated all diffi- 
culties. The bars, or ingots, designed for money, 
were first assayed, and made of one degree of fine- 
ness. This degree was called the standard. The 
metal thus assayed was then divided into pieces, and 
the weight carefully ascertained, and stamped upon 
each. These pieces were called coins ; the process, 
coinage. As this coinage involved great responsi- 
bility, it very properly became the duty and pre- 
rogative of the government. Each government 
established an institution for the purpose, called a 
mint. To these mints the people carried their gold 
and silver, and, lyy paying a very trifling seigniorage, 
had the whole amount returned to them in coin. 



146 EXCHANGE. 

Such is the character of a currency composed en- 
tirely of money, or that which has value in itself. 
Of all subjects, this is one of the most simple, most 
free from all complexity and mystery. No one can 
fail to understand it. Government has not the 
slightest occasion to interfere with or regulate it. 
It obeys certain natural laws, which cannot be im- 
proved by man. All that government can usefully 
do is to certify to the weight and fineness of the 
coinage. It has no further concern with money. 

The main point to be borne in mind, in relation 
to coinage, is, that government does not determine 
the value at all, but simply certifies to the weight 
and purity. 



CHAPTER III. 

II. CREDIT CURRENCY. 

This we have already stated to consist of the 
promises of government to pay money, which, by 
force of law or the necessities of the people, are re- 
ceived as money. It is simply the credit of the 
nation, used as currency. The element of value does 
not enter into it at all. It is precisely the opposite 
of a value currency. 

CHARACTERISTICS OF CREDIT CURRENCY. 

Such a currency may transfer debts, but it cannot 
pay them. The creditor may accept the promises 
of the government in place of that of an individual, 
but he receives no value. So far as issued by the 



CREDIT CURRENCY. 147 

government and accepted for taxes and other public 
dues, such notes are mere counters, used for cancel- 
ling reciprocal obligations. If such notes are issued 
"beyond the natural volume of the currency, they 
can never be kept at par with specie, or circulate at 
their nominal value. Gold, as compared with them, 
will bear a premium, the amount of w T hich will indi- 
cate the excess and depreciation of the currency. 

This premium is the result of the operation of the 
laws of value ; and no legislation of free government 
or edict of despotism can permanently change it. 
Governments might as well prescribe the height to 
which the tides of ocean shall rise, as to restrict or 
reduce the premium on gold. 

Such legislation is not only futile, but injurious, 
producing an effect just opposite to that intended. 
It disturbs the market price of gold, destroys confi- 
dence in its actual price, and, by exciting distrust, 
drives the premium far up beyond its natural limit. 

The experiment made by the Congress of the 
United States in 1864 showed most conclusively the 
utter folly of attempting to interfere with the laws 
of value. After the u gold bill," so called, became 
a law, the premium rose at once some fifty per cent, 
above its previous rate. The unwise act was speedily 
repealed, and the excessive premium it had caused 
fell off. 



EFFECT OF CREDIT CURRENCY ON PRICES AND INCOMES. 

A general rise of prices follows the introduction 
of a credit currency, because it is always issued in 
excess of the natural volume of money; and conse- 



148 EXCHANGE. 

quently, as prices must, in the average, conform to 
the quantity of currency, they will advance as it is 
increased. It is quite idle to attempt to evade the 
operation of this law. "When the Secretary of the 
United States Treasury endeavored to " float" his 
bonds by the issue of credit currency, he unfortu- 
nately "floated" all the merchandise of the country 
at the same time, so that the rise of prices compelled 
him to pay double for all the government needed ; 
and hence he lost at least one-half of all the bonds 
that were thus sold. 

The effect on fixed incomes is very marked. From 
whatever source, fixed incomes are depreciated in 
value just in proportion to the depreciation of the 
currency. 

EFFECT ON CONTRACTS. 

A credit currency, it may be safely assumed, is 
always redundant; and, as such, its effect on con- 
tracts is twofold. Obligations to pay money made 
with a specie standard, and paid with credit cur- 
rency, will impose a loss of value on the creditor 
equal to the depreciation of the currency. 

On the other hand, contracts made to pay money 
during the existence of a credit currency, but which 
mature and are discharged under a value currency, 
will subject the debtor to the loss of all the differ- 
ence in the value of the two currencies. Great in- 
justice and suffering resulted from this source, on 
the recognition of American independence, in the 
last century, am on 2: the first of which mav be reck- 
oned the Shay's Rebellion of Massachusetts. 






CREDIT CURRENCY. 149 

Historically, it is found to be true, that a credit 
currency has never yet been kept within the natural 
limit of the value currency of the country in which 
it was established. The "continental money" of 
the American Revolution; the assignats of the 
Trench Revolution; the bank money of England 
during the Napoleonic wars ; and, lastly, the green- 
backs, or treasury notes, issued during the late 
Rebellion, and the present paper currency of Rus- 
sia and Austria, are illustrations in point. 

A credit currency never has been regulated in 
such a manner as to keep it on a par with specie, 
and probably never will be. The necessities of 
government are so pressing that the temptation to 
increase the amount becomes too great for resist- 
ance. As prices rise in consequence, the currency 
becomes of less and less value, that is, has a decreas- 
ing power in exchange, so that the inducement to 
issue becomes continually stronger as the volume 
expands. 

But the issue of a legal-tender credit currency is, 
under any circumstances, a great wrong, and can 
never be justified except in the most extreme cases 
of national peril ; and, even in those instances where 
it has been defended as an indispensable measure, 
events have generally proved it to have been a mis- 
taken and short-sighted policy. 

CREDI'T CURRENCY A FORCED LOAN. 

When a government issues its notes as currency, 
and makes them a legal tender, or authorizes other 
parties to do so, it creates a forced loan. 

13* 



150 EXCHANGE. 

All creditors are compelled to receive these notes 
for whatever maj 7 be due to them, which is equiva- 
lent to making a loan to the government to the 
amount so received ; and those who sell their 
property are obliged to take these promises, since 
there is no other currency in use, so that the whole 
amount thus put into circulation becomes a com- 
pulsory loan to the government. 

CREDIT CURRENCY A DIRECT TAX. 

As soon as legal-tender credit notes begin to de- 
preciate in value, or, in other words, as soon as com- 
modities rise in consequence, each person who re- 
ceives them pays a tax equal to their depreciation. 
For example, if he receives a ten-dollar note, which 
will bring him but eight dollars' worth of merchan- 
dise at the gold price, he has contributed two dol- 
lars to the government. So, of course, with all 
w T ho receive notes in payment for debts contracted 
prior to the issue of such currencj 7 . 

For illustration, the government issues one hun- 
dred millions of its notes at first; and for this, as 
prices have not been raised, it receives an equal 
amount in value. It issues a second hundred mil- 
lions; but prices have advanced in consequence of 
the first issue, we will suppose, fifty per cent., so 
that the government gets but $66,666,666 in value. 
A third issue is made of one hundred millions; but 
prices have gone up one hundred per cent., and 
the government gets but fifty millions in value. 
Another issue of one hundred millions carries 
prices up to one hundred and fifty per cent., and 
only forty millions is realized in value. This is not 



MIXED CURRENCY. 151 

intended as a statement of the precise fact, but to 
exhibit the natural operation of such issues, and 
shows the operation or general result upon the com- 
munity of a credit currency as a direct tax : but the 
effects upon different individuals are diversified in 
every possible manner; one man losing, another 
gaining by it, according to the position in which 
the parties are found at the time they were com- 
pelled to accept such a currency instead of money. 
The laws of value having been violated, universal 
chaos in all monetary affairs is the inevitable conse- 
quence. 

The final result of the issue of an inconvertible 
currency, then, is, that, if it is never redeemed, the 
taxation it imposes is most unequally and unjustly 
distributed; if it is finally paid, then the taxation 
is not only unfairly distributed, but the amount 
vastly increased, since the expenditures of the gov- 
ernment have been largely enhanced by it. 



CHAPTER IV. 

III. MIXED CURRENCY. 

Mixed currency is a modern invention, as yet 
known only to a small part of the human race, and 
but partially understood even in those countries 
into which it has been introduced. 

The Bank of England, the parent of all mixed- 
currency institutions throughout the world, was 



152 EXCHANGE. 

established in 1694; but its operations were so 
limited, and its influence so partially felt, during 
the first century of its existence, that the character 
of the currency it issued was hardly appreciated. 
This bank made a grand suspension in 1796, and 
continued in that state for over twenty-three years. 
This was the first occurrence which demonstrated 
practically the true nature of this kind of currency. 

If we carefully observe the composition of a 
mixed currency, we shall find it to consist of 
promissory notes issued by individuals or corpora- 
tions legally authorized to do so, in excess of the 
actual specie held for their redemption. 

This is rightfully called a mixed currency, because 
it is, in fact, composed in part of value and in part 
of credit. So far as specie is held for the payment 
of these notes, this kind of currency is actually con- 
vertible, and equivalent to money; but, in so far as 
the credit element exceeds the specie, it is only a 
promise to pay money, and is really inconvertible. 
It is the proportion of specie, whatever it may be, 
which determines the quality of this kind of bank- 
note circulation. Its quality is the great question 
of interest to all who use this kind of currency; 
and of that we propose now to speak. 

THE QUALITY OF A MIXED CURRENCY. 

This is by far the most important matter in rela- 
tion to a mixed currency. What is the proportion 
of specie held for its conversion? To ascertain this, 
we must know, on the one hand, the amount of 
notes in circulation, and the inscribed credits, that 



MIXED CURRENCY. 153 

is, the deposits; and, on the other, the amount of 
specie in bank. We have naught to do with any 
other inquiry, so far as the quality of the currency 
is concerned. We have no occasion to make such 
an inquiry in regard to money, for that has value in 
itself, and needs no conversion; nor in relation to a 
purely credit currency, for that does not profess 
convertibility; but a mixed currency, to be reliable 
and beneficial to the public, must be what it pro- 
claims itself to be; viz., convertible on demand into 
coin. 

And here it is necessary to distinguish carefully 
between the convertibility and the redeemableness 
of a currency. The first may be uncertain or im- 
possible, while the last may be sure. A bank may 
be perfectly solvent, while its currency is almost 
entirely inconvertible. 

For example, a bank has promised to pay one 
hundred thousand dollars in specie, while it has 
only ten thousand dollars to pay with. The same 
bank has demands against individuals, for their 
notes discounted, to the amount of two hundred 
thousand dollars. Now, it is certain that this bank 
can convert only ten thousand dollars of its bills; 
but it can, if sufficient time is allowed, redeem the 
whole amount, by taking in its own notes in ex- 
change for those of its debtors. The power of the 
bank ultimately to redeem or cancel its notes may 
be amply sufficient; though, for the conversion of 
them into specie, it has the ability only to the ex- 
tent of one-tenth. 

A bank-note converted into coin, the money still 
exists in circulation: a bank-note redeemed by re- 



154 EXCHANGE. 

ceiving it for indebtedness to the bank, is taken out 
of circulation; that is, it ceases to be currency, and, 
for the time being, is practically annihilated. The 
circulating medium of the country is diminished to 
that extent. This is the one great defect of a mixed 
currency. 

To illustrate this point, and show how much de- 
pends upon the quality or convertibility of a mixed 
currency, we propose to take that of the United 
States as an example. In doing this, it will be 
indispensable that we refer to the statistics of bank- 
ing institutions, and use the terms commonly em- 
ployed by them; and therefore w r e now proceed to 
define them. 

LIABILITIES OF A MIXED-CURRENCY BANK. 

1. Capital Stock. — This is the sum total of all the 
amount paid into the bank, to constitute its means 
of doing business. 

2. Circulation. — This consists of notes of the bank, 
of different denominations, payable on demand, 
signed by its officers, and issued to circulate as 
money. 

3. Deposits. — These include all sums, from what- 
ever source, that stand on the books of the banks to 
the credit of individuals. They are properly called 
inscribed credits: they are nothing more or less. 
They are all legally payable on demand, in specie, 
to those persons in whose names they stand. A 
more full description of their nature and effects 
will be given hereafter. 

Bank Balances. — "Due to other banks' 7 and "due 



MIXED CURRENCY. 155 

from other banks" are terms used in the official re- 
turns made to the Treasury Department of the 
United States. 

They explain themselves. Banks, like individuals, 
have open accounts with each other. These, in the 
aggregate, must balance each other ; but there is 
often a considerable apparent difference, arising 
from the fact that large sums are constantly in 
transitu. 

As affecting the character of a mixed currency, 
these balances are an important item, because they 
form the most explosive and dangerous element. 
They are " deposits" in their nature, certain to be 
drawn in any sudden emergency. This was strik- 
ingly illustrated in the autumn of 1857. At that 
time, the banks in the city of New York owed 
some sixty millions of dollars which had been left 
with them by distant banks in order to meet their 
own liabilities. When the pressure came on, in 
September and October of the year mentioned, 
these banks began, of necessity, to call in their 
balances. 

This placed the New York banks in a position 
of great difficulty. To answer these calls would 
require a large part of all their means; while, at 
the same moment, the merchants and business men 
of the city needed all the resources they could com- 
mand. But the banks must meet the drafts made 
for their balances, or suspend at once; and, accord- 
ingly, were compelled to cut off all discounts, or 
loans, to their regular customers. This state of 
things could not be long endured; and the mer- 
chants of the city, being soon driven to despera- 



156 EXCHANGE. 

tion, began to draw upon their own deposits for 
specie; and thus a general suspension took place, 
not only in the commercial metropolis, but through 
the country. 

These balances, as they exist extensively in all 
great cities, form the train that ignites the magazine, 
and causes an instant and general explosion. The 
Bank of England was compelled, in 1847, to obtain 
a suspension of the act of 1844, by the threat of the 
banking houses to withdraw their balances, and again 
in 1857, and 1866. 

Other Liabilities. — These consist of various obliga- 
tions, which banks incur in the course of their 
transactions with the public and each other. They 
are not large compared with their aggregate liabil- 
ities, but must be taken into the account. They 
may be immediate or remote liabilities, but are 
mostly immediate. 

RESOURCES OF A MIXED-CURRENCY BANK. 

Loans. — This item includes the sum total due the 
bank from its customers for discount and advances, 
and for which the banks hold notes or other obliga- 
tions, payable at some future time; say, from one 
day to four or six months, as the case may be. 

Stocks. — Banks are large purchasers of the various 
national and State stocks, and also those of towns, 
cities, railroad companies, etc. 

Heal Estate. — A place of business being indispen- 
sable to the operations of banking, buildings are 
erected for such purposes. These, being often be- 
yond the needs of the bank, are rented in part. 



MIXED CURRENCY. 167 

Other Investments. — A general term that includes 
all kinds of property the bank may hold, from neces- 
sity or choice, not embraced in any preceding title. 

Notes of other Banks, — As banks, in the coarse of 
business, are constantly receiving each other's notes, 
they must necessarily have, in the aggregate, a large 
amount, which appear among their assets. Notes 
thus held in no essential particular affect the general 
character of the currency : they only concern the 
relations of the banks to each other. 

Cash Items. — Many banks have the practice of 
reckoning certain assets they hold as equivalent to 
cash, and class them as " cash items" in their returns. 
For example, a bank may hold a check upon another 
bank for a given sum, which, in its account with that 
bank, and for many other purposes, may be equally 
available for the time being, with money actually in 
hand. Checks drawn by individuals on other banks, 
foreign exchange, sight drafts, and the like, are often 
reckoned among these items. But, whatever their 
origin or character, they add in no degree to the 
strength of the currency. They may help the indi- 
vidual bank that holds them, as compared with the 
debtor banks, but not the general mass. 

Undivided Profits. — Such an item appears in the 
returns published by the general government, and 
is of considerable importance. In most banks, it is 
customary to reserve a certain sum from the profits 
of each year, to insure against unexpected losses or 
contingencies. In some cases, this reserve is large; 
in others, small. It is, for the time being, an in- 
crease of banking capital, but adds nothing to the 
convertibility of current notes. 

14 



158 EXCHANGE. 

With this explanation of the terms employed, we 
proceed to give such statistics of the banks of the 
United States as shall exhibit the character of the 
currency they issue. 

The first point to be noticed is the aggregate capi- 
tal of these banks, which we find to be $421,880,095, 
on the 1st of January, 1860. We have selected that 
point of time, because the country was then undis- 
turbed, and the currency in its natural condition. 
This capital, as we have already explained, is the 
amount which the banks have at their command, 
and which it is their business to loan out to the 
public; and, let it be recollected, this is all which 
they can loan, except their own credit, issued in 
the form of bank-notes, or inscribed in their books 
as " deposits/' in exchange for the notes of indi- 
viduals or business firms and corporations. 

The next point to be noticed is the aggregate of 
all the assets or property of these banks ; and by 
ascertaining this, and subtracting therefrom the 
capital, as before stated, we shall find to what ex- 
tent the banks have loaned their credit, and, of course, 
to what extent credit enters into the currency. The 
statistics which show this present the following 
result : 

The entire property in possession of the banks, at 

this, time, was $887,789,762 

.From which deduct the aggregate capital . . . 421,880,095 

Total Credit issued by the banks $465,909,667 

On this amount the banks were receiving interest, 
or income beyond that received for their actual 
capital. 

This " total credit" issued by the banks was — 



MIXED CURRENCY. 159 

Its circulation $207,102,447 

Deposits 253,802,129 

. Total currency $460,904,576 

The remarkable difference, then, between the 
capital of the banks and their property in possession, 
is the first thing to be noticed in regard to the mixed- 
currency system, because it shows how it is that 
large profits may be made upon mixed-currency 
banking. Interest is obtained upon twice the amount 
of actual capital. This income, however, is not uni- 
formly distributed among the banks acting under 
the system. Some obtain more ; others, less. 

"We also see why it is that such banks must be 
constantly desirous of increasing their loans, by 
issuing their own credit in the shape of circulation 
and deposits. The more they can get out, the 
larger the income. This is the motive power that 
insures the constant expansion of a mixed currency 
to its highest possible limit. The banks will always 
increase their indebtednesswhen they can, and only 
contract it when they must. 

These facts show, too, why a mixed currency 
exists at all ; viz., because those who create it make 
a profit both on their capital and credit, and as much 
on the latter as the former. 

But still another view T of the currency is necessary, 
to show the preponderance of the credit over the 
value element in the actual currency: 

I860. Circulation, as before . $207,102,477 

Deposits 253,802,129 

Whole currency $460,904,606 

Specie, or value 83,594,537 

Pure credit $377,310,069 



160 EXCHANGE. 

This will give eighteen cents and one mill on the 
dollar as the value element, and eighty-one cents and 
nine mills as the credit element, in the entire cur- 
rency ; credit being to value as more than five to one. 

But yet another view of the system is necessary, 
if we would understand the true position of the 
banks in relation to each other, in case of an actual 
demand for specie, occasioned by want of confidence 
or demand for exportation. 

Immediate liabilities of the banks of the United 
States, 1860: 

Circulation $207,102,477 

Deposits 253,802,129 

Due other banks 55,932,918 

Other liabilities 14,661,815 

$531,499,339 

Immediate resources : 

Specie \ . $83,594,537 

Cash items 19,331,521 

Notes of other banks 25,502,567 

Due by other banks 67,235,457 

195,664,082 

Excess of immediate liabilities over immediate re- 
sources $335,735,257 



CONVERTIBILITY. 

From this statement we perceive the real position 
of the banks in regard to the convertibility of their 
currency. They owed on demand $335,735,257, 
which they had no immediate means in their pos- 
session to meet; but they held the following assets, 
or ultimate resources : 



MIXED CURRENCY. 161 

Loans $691,945,580 

Stocks 70,344,343 

Real estate 30,782,131 

Other investments 11,123,171 

Total $804,195,225 

After deducting the excess of immediate liabilities, 

as above 335,735,257 

Surplus $468,459,968 

This would seem a sufficiently large margin to guar- 
antee the ultimate redemption of the bank currency; 
but does it secure its immediate convertibility? 
That is the point; and the answer must depend 
upon the question, whether the banks can realize 
from their assets (loans mainly) as fast as the redemp- 
tion of their deposits and notes may be called for. 
If not, they must suspend. Their loans are on time, 
from one day to six months ahead, and therefore 
may not be, actually due, so fast as the necessities of 
the banks may require; but, even if they should 
mature fast enough, the practical question w 7 ould 
still arise, whether, if the banks take in their notes 
and refuse to put them out again, and decline to 
make their usual loans, as in the emergency of a 
large ,demand for specie they certaiidy must, how will 
it be possible for the debtors of the banks to meet 
their payments? If the banks could stop their 
loans just when they pleased, they might perhaps 
save themselves from dishonor; but they cannot do 
this, because, unless they continue to make dis- 
counts, their customers will certainly fail, since they 
rely upon discounts to meet their obligations as they 
become due; therefore they suspend, and then ex- 
tend, their loans. 

14* 



162 EXCHANGE. 



CHAPTER V. 



ANALYSIS OF DEPOSITS. 



Our analj'sis of mixed currency will be far from 
complete, if we do not give a full description of the 
origin and character of what are called deposits, as 
forming an element most dangerous to such a cur- 
rency, and generally very mysterious in the popular 
understanding. To the popular mind, the term 
" deposits" conveys an impression directly opposite 
to the truth. They are supposed to be actual 
money or capital in possession of the banks, while 
they are in fact debts which the banks owe to their 
customers on demand. 

In the currency of the United States, deposits 
constitute the largest item, considerably exceeding 
the circulation. 

The nature of these deposits has, until within a 
very few years, been a matter of serious disagree- 
ment among those who ought to be well acquainted 
with their nature and effects. To present the sub- 
ject in such a light that it shall be clearly under- 
stood, we must carefully examine it in all its details. 

First. What are deposits ? We have already de- 
fined them as credits given to individuals in the 
books of the banks, for which they are authorized 
by laAv to demand the specie. They indicate what 
the banks owe on account 



ANALYSIS OF DEPOSITS. 163 

Secondly, How do they arise ? In various ways. 

1. A customer may deposit coin, and have the 
amount passed to his credit. The proportion thus 
deposited is infinitesimally small, compared with 
the aggregate deposits. 

2. He may deposit checks, drawn by himself or 
others, on other banks. 

3. He may deposit the notes of the same or other 
banks. 

4. He may deposit the notes of individuals, or 
bills of exchange running to maturity; and, when 
they are collected, the amount will be passed to his 
credit. 

5. The customer may get his own notes, or the 
notes of others, discounted at the bank, and the 
amount is passed to his credit; and this last is the 
origin of the greater part of all deposits. 

Of these different kinds of deposits, it will be 
observed that only one, and that a small one, was 
in specie ; and yet the bank has promised to pay 
specie on demand alike for all. But it must be ob- 
served, that, while all these stand legally on the 
same basis, as a matter of fact they are practically 
held by the banks upon different conditions, ex- 
pressed or implied. They may be divided into three 
kinds : 

First Permanent or compulsory deposits, made 
by business men wishing for bank accommodations, 
in order to secure larger loans. 

Second. Fiduciary or trust deposits, made wholly 
for temporary safe keeping, by executors, guardians, 
treasurers of corporations, etc., who are receiving 
funds to be paid out, or invested at a future period. 



164 EXCHANGE. 

Third, Active deposits, made by business men, to 
be withdrawn to meet their current payments. 

It will be necessary to explain these different de- 
posits. 

The permanent or compulsory deposits are not 
used at all by those who make them. They are 
made with the tacit understanding that they are to 
remain in the bank, and not be drawn upon. They 
are made to secure favors from the bank, and in 
order to show a " good account/ 5 No bank, per- 
haps, compels its customers, by any law or rule, to 
do this ; but custom in such a case is as imperative 
as law. Banks are conducted wholly with reference 
to profit, and the most profitable accounts will secure 
the most liberal discounts. 

These deposits constitute a permanent loan to the 
banks, without interest; and the banks can loan the 
same to their customers upon interest. It is one of 
the forms in which a bank may secure extra inter- 
est in a legal way ; but it is done at the expense of 
those who make the deposits. 

This kind of deposits forms a very dangerous ele- 
ment in the mixed-currency system, for the reason, 
that, wdien the merchants of any great city are 
driven to desperation, they may demand these de- 
posits in specie, and then the banks must suspend. 
This was done in New York in October, 1857, as 
before stated. The merchants saw clearly, that, 
unless the banks would make discounts, they could 
not meet their engagements. The banks refused to 
do this, because they could not, and continue to pay 
specie. The merchants then, by concerted action, 
called for their deposits ; and the banks themselves 
succumbed. 



ANALYSIS OF DEPOSITS. 165 

This will always be re-enacted in a time of great 
pressure, if the mixed-currency system is continued. 
It is the only remedy which the mercantile interest 
has within its power. It is properly used, because 
the banks have no right to make promises which 
they know perfectly well they cannot keep. 

Another objectionable consideration is, that these 
deposits greatly and unnecessarily enlarge the im- 
mediate liabilities of the banks, and give them a 
frightful preponderance over the immediate means 
of payment. This injures the credit of the banks 
in times of pressure. All sagacious financiers look 
with suspicion on institutions owing ten or fifteen 
dollars on demand for every dollar they have in 
their possession. On the 29th of August, 1857, 
the banks of the city of ~New York owed for eighty- 
four millions for deposits and nine millions for cir- 
culation, — in all, ninety-three millions, — and had 
but nine millions of specie. 

Compulsory deposits mean, simply, extra interest; 
but that interest is paid in a manner most burden- 
some to the depositors, and most dangerous to the 
banks. 

Of the second class of deposits, viz., those on trust 
or for safe keeping merely, it may be said, that they 
are perfectly legitimate, and may, to a certain ex- 
tent, be loaned by the banks with safety. 

The third class of deposits may be described as 
follows : 

(a) A business man, who is making sales each 
day, will receive, in payment, notes of all the dif- 
ferent kinds in circulation. He will also receive 
checks on different banks. All these he will de- 



166 EXCHANGE. 

posit in bank; and the amount is passed to his 
credit, and becomes a bank deposit. 

(6) He will also receive notes of hand, drafts, and 
bills of exchange in payment. All these, when 
nearly due, he will deposit in bank; and, when 
paid, they are passed to his credit. 

(c) Or, if he desires to anticipate the payment of 
such notes, he may ask the bank to deduct the in- 
terest (and exchange, if there be any), and place the 
amount to his credit; and this the bank will, in 
ordinary circumstances, be ready to do; and the 
amount so passed to the credit of the customer will 
constitute a part of the deposits of the bank. 

ARE BANK DEPOSITS CURRENCY? 

Lord Overstone has maintained the negative; but 
most writers in this country take the affirmative 
side of the question : indeed, there are, at the present 
time, few, if any, who doubt that deposits are cur- 
rency. The New York Board of Currency has given 
its verdict unequivocally as follows: "They constitute 
at this time five-sixths of the active currency of this city." 
See the official report of that association for Novem- 
ber, 1858. No array of authorities, however, but 
an examination of facts, should determine the 
question. 

Deposits are an instrumentality by which by far the 
greatest amount of values are transferred in com- 
mercial centres. They discharge debts, purchase 
commodities, and perform all the functions of cur- 
rency, except circulation. 

For example, A has a deposit in the Merchants' 



ANALYSIS OF DEPOSITS. 167 

Bank. He purchases of B a bill of sugars, amount- 
ing to ten thousand dollars, and pays for the same 
with a check on that bank, with which B either 
draws the notes or specie of the bank, or has the 
check passed to his credit by the bank. This trans- 
action has been equivalent to the transfer of ten 
thousand dollars in value from one party to the 
other. 

If A owed B a note of ten thousand dollars, he 
might pay it in the same way. 

Now, what difference did it make to A whether 
he had ten thousand dollars of bank-notes in his till, 
or an equal amount to his credit in the bank? 
Clearly, not the slightest. One was as truly cur- 
rency as the other. 

All bankers and business men are well satisfied 
that deposits are even more active by far in trans- 
ferring values than the bank circulation; that a 
much greater number of exchanges is made with 
deposits than with an equal amount of bank-notes. 

A little reflection will satisfy any one that such 
is the fact. The sum of ten thousand dollars, for 
example, might easily pay in a single day, in ten 
different transfers by checks, a total of one hundred 
thousand dollars. This would not be an extravagant 
supposition; but it would be quite improbable that 
bank-notes make ten payments in a single day. 

The efficiency of money, or its substitutes, de- 
pends greatly upon the rapidity with which ex- 
changes are made. John Stuart Mill recognizes 
this principle; and it is a very obvious one. The 
currency of any country is as its quantity multiplied 
by the rapidity of its circulation. This considera- 



168 EXCHANGE. 



tion will lead us to regard the whole amount of 
deposits as equal in effect to an equal amount of 
circulation. 



CHAPTER VI. 

MIXED CURRENCY. — FLUCTUATIONS IN QUANTITY AND 

QUALITY. 

A mixed currency consists, as we have shown, 
of two kinds of bank indebtedness, viz., what the 
banks owe for their notes issued as circulation, 
and what they owe on account, the payment for 
both of which may be demanded in coin. We pass 
now to consider this currency in its several rela- 
tions to the public wealth. Such an inquiry will de- 
mand great carefulness and impartiality, and must 
necessarily be made in detail. 

We have two grand questions which arise natu- 
rally at the start : 

1st. Does it perform satisfactorily the functions 
of money? If we answer this inquiry favorably, 
we have still to ask, — 

2d. What, and how great, are its effects on public 
interests, beyond the proper effects of value cur- 
rency? 

These questions are so full of interest to all the 
departments of wealth, are so deeply obscured by 
prejudice and misapprehension, and are so espe- 
cially important at the present time, that their dis- 
cussion will be protracted through several chapters. 



MIXED CURRENCY. 169 



1st. does a mixed currency satisfactorily per- 
form THE FUNCTIONS OF MONEY? 

Those functions are, as already stated, — to act as a 
medium of exchange, and to be a standard of value. 

Does a mixed currency perform them well ? We 
answer, no. The essential quality of such a currency, 
which unfits it to act well as either a standard of 
value or a medium of exchange, is this : 



IT IS NOT GOVERNED BY THE LAWS OF VALUE. 

It is subject to quite other laws. It varies as to 
its volume and character; but we do not find that it 
does this out of respect for value. The great prin- 
ciple of value is, demand creates supply ; supply 
satisfies demand. They are measured against each 
other, and are found equal. There is no supply 
which demand does not call for : there is no supply 
which is not enough for demand. And the reason 
for this perfect equality is that value cannot exist 
without labor. The same cause that increases sup- 
ply expands demand to the same proportions; the 
same cause that restricts supply reduces demand 
correspondingly. 

Now, this law controls the expansion or contrac- 
tion of money, or a value currency. If it is increased, 
as it may be in the natural course of commercial 
transactions, it is because actual money has been 
brought into the country by the balance of trade ; 
but a mixed currency is increased by the voluntary 
and interested action of bank managers, without re- 
gard to the laws of value, and without the addition 

15 



170 EXCHANGE. 

of a dollar to the real money, or wealth, of the coun- 
try. The increase of money by importation takes 
place in obedience to causes that are gradual and 
appreciable; and any one who watches the course 
of commerce can anticipate its arrival. If it comes 
in excess, from any unusual source, it easily and 
naturally passes off* to other countries, till the balance 
is restored. No artificial appliances or legal enact- 
ments are needed to keep true money at a level the 
world over. 

We have found that the quantity of a mixed cur- 
rency is not governed by th.9 laws of value. Do we, 
then, find that it is controlled by accident? It would 
be better so, for there would be more chances of its 
coming right. But, on the contrary, we find laws 
positively mischievous substituted for the wholesome 
operation of supply and demand. 

Firstly, Of expansion. The more that is issued 
of a mixed currency, the more will be wanted. The 
supply does not satisfy the demand; it excites it. 
Like an unnatural stimulus taken into the human 
system, it creaes an increasing desire for more; 
and the more it is gratified, the more insatiable are 
its cravings. 

There are two reasons for this : one, that, as the 
currency is expanded, prices are raised correspond- 
ingly, and more currency is demanded to effect the 
same exchanges; the other, that the speculation 
inevitably following the rise of prices leads to an 
enormous extension and repetition of indebtedness, 
which requires, for its discharge, a greatly increased 
amount of the circulating medium. Thus, by the 
action and interaction of these causes, the demand 



MIXED CURRENCY. 171 

for the issue of this kind of currency is certain to be 
greatest when it is already redundant. All this, of 
course, is quickened and helped by the fact that the 
manufacturers of this currency are ready and eager 
to crowd upon the public all it will take. 

Secondly. Of contraction. We have seen the forces 
that raise the currency higher and higher. We have 
not seen that it is done for the public good, or in 
obedience to a call of trade. We might suppose that 
there would be an unending progress in this direc- 
tion, till any degree of expansion should be reached, 
inasmuch as the law of value does not govern a prod- 
uct into which the element of labor does not enter. 
It is not, therefore, the expense of multiplying it, 
nor is its increase limited by any consideration of 
utility. The cause that limits expansion, and finally 
produces contraction, is the liability of the notes to 
be presented for payment in money. The occasion 
for this cause to operate may be almost anything, — 
a political convulsion, an adverse balance of trade, 
a failure of some large trading or banking company. 

We will take that one which is most common and 
sensible, — an adverse balance of trade. If it be 
large, the demand for specie which it occasions will 
create a profound sensation among the banks. With 
actual money, there is, under these circumstances, 
no reason for excitement or alarm; ten million dol- 
lars of the currency will discharge that amount of 
debt abroad, and the currency at home is reduced 
but so much. A mixed currency has, in itself, no 
power whatever to satisfy a foreign creditor. If ten 
million dollars are to be paid abroad, it must be 
taken from the. specie of the banks ; the basis of the 



172 EXCHANGE. 

currency is so much diminished, and the circulation 
must be curtailed accordingly ; that is, notes must 
be brought in, and not put out again till the basis is 
restored. If the proportion of specie, as is the case 
on an average in this country, is only as one to live 
of notes, then the export often million dollars abroad 
must cause a contraction to the extent of fifty million 
dollars at home. The withdrawal of so much cur- 
rency, and of that very part which circulates most 
actively, causes stringency ; and stringency causes 
suspicion. Let another ten millions be called for 
out of the specie basis, and affairs will become very 
critical. The legitimate effect of the export, so far, 
would be to contract the currency one hundred mil- 
lion dollars; but another cause is introduced now. 
Vague apprehensions abound, everybody gets pru- 
dent, many are scared, and money is hoarded. Here 
is another reason for contraction. With a value 
currency, the fact that it was especially wanted would 
be a reason why it should stay. Not so with credit 
money. 

It is hardly necessary to trace the course of con- 
tractions, they are so familiar to the American mind. 
The banks know their own position better than any 
one else. They understand precisely what they 
must do. They act instantaneously. They curtail 
their loans. They know that trouble is at hand, and 
they propose to meet it in the best way for them- 
selves. They know that their notes may now prove 
their ruin, and they propose to get them out of the 
way as fast as possible. 

There are two classes of banks : 

1st. Those who transact all their .business in an 






MIXED CURRENCY. 173 

honorable manner, and, so far as the nature of the 
currency they issue will admit, on a secure basis. 

2d. Those who get out, and keep out, all they 
can, and carry their circulation, deposits, and loans 
as high as possible, without regard to the specie in 
their vaults. This class is numerous, especially 
among those of small capital. 

In case of a demand for specie, the latter class 
are obliged to call for assistance from the former, 
who, willing or unwilling, are equally obliged to 
give it. The " feeble banks " must be sustained, or 
the w T hole system will be suspected. If these be 
allowed to dishonor their notes, a run will be made 
at once on all the rest; and, having as we see only 
one dollar in five to pay with, they must, of course, 
soon stop paying altogether. 

It is commonly said that the banks only increase 
their issues as demanded by the w^ants of trade; 
that they extend their credits, because the public 
require them as business facilities. 

If this were true, it would be of no consequence 
in the discussion ; because, the laws of value having 
been disturbed in this matter, the demand is no 
longer normal. We have no longer the assurance 
that trade will call into use just that amount of cur- 
rency which it needs. 

But it is not true. The movement always com- 
mences with the banks. When, by a monetary re- 
vulsion, their circulation and deposits have been 
reduced so low that they feel safe in commencing 
another expansion, the panic being over, the banks 
begin to offer extraordinary inducements to their 
customers to borrow money. They will discount 

15* 



174 EXCHANGE. 

all good paper offered, even if it has a long time to 
run. It is not uncommon, at such times, to solicit 
the privilege of making loans.* As soon as this 
state of things takes place, all business men begin 
speculative operations ; for prices have begun to 
rise. Speculation will give a still greater rise to 
prices, and cause a still greater demand for cur- 
rency. The expansive force is now in full opera- 
tion, and is sure to increase in power till by re- 
vulsion the equilibrium is restored. 



CHAPTER VII. 

TABLES AND DIAGRAMS OF MIXED-CURRENCY FLUC- 
TUATIONS. 

We have shown, from the reason of the case, that 
a mixed currency is not governed by the laws of 
value; and that therefore its variations are con- 
trolled by other principles, which, give no guaranty 
to the public good, but, on the contrary, threaten 
great mischief to the community, both by expansion 
and contraction. 

We now propose to show, by facts taken from 
official statistics, that such fluctuations are frequent 
and violent. 

The following table exhibits the fluctuations in 
the absolute quantity of the mixed currency (circula- 

* This is within the personal knowledge of the author as a bank 
director. 



DIAGRAM N°- 1. 
Skowinv the fluctuation of the Currency of the 
United States, and the Proportion of Specie 
capita. 1837 to Circulation and Deposits. 

$17. 



m 



16. 



15 



14. 



13. 



85 



12- 



1834 



11 



10- 
9- 
8- 
7- 
6_ 
5- 
4- 
3- 
2- 
1- 



Per 

Capita. 

-$17 



57 



-^54- 



[—1 56 



a> 



52 



53 55 



u: 



4U 



48 



46 



IT - 



45 



m 

47 



42 



3" 



50 



1859 



58 



49 



1843 



Circulation and Deposits per Capita. 



1859 



1835 3a 

36 
13738 



40 



48 



1834 



1844 

|42p L_J 

Specie per Capita 



,51 



52 



53, 



54 



58 



55^57 



16 

15 

14 

13 

12 

11 

10 

9 

8 

7 

6 

5 

4 

3 

2 

1 



TABLES AND DIAGRAMS. 



177 



tion and deposits) of the United States from 1834 to 
1859 inclusive, a period of twenty-six years: 



TABLE I. 



1834 
1835 
1836 
1837 
1838 
1839 
1840 
1841 
1842 
1843 
1844 
1845 
1846 



170,000,000 
186,000,000 
255,000,000 
276,000,000 
200,000,000 
225,000,000 
182,000,000 
172,000,000 
146,000,000 
114,000,000 
159,000,000 
177,000,000 
202,000,000 



1847 ..... 197,000,000 

1848 231,000,000 

1849 205,000,000 

1850 240,000,000 

1851 284,000,000 

1852 328,000,000 

1853 348,000,000 

1854 392,000,000 

1855 377,000,000 

1856 408,000,000 

1857 445,000,000 

1858 341,000,000 

1859 . : . . . 452,000,000 



These facts are collected, as nearly as possible, 
from the returns made at the beginning of the years 
mentioned. Therefore the contractions or expan- 
sions made during a year do not appear till the re- 
turn of the next year. For example, the great con- 
tractions of 1837 and 1857, beginning several months 
after January, do not exhibit their full effects till 
the currency returns of the years 1838 and 1858. 

Diagram No. 1, here introduced, exhibits the 
fluctuations in the currency (circulation and de- 
posits), and also the proportion of specie, from 1834 
to 1859 inclusive, both reckoned per capita. 

The upper line indicates the currency, the lower 
one the specie. 

This diagram shows distinctly the actual fluctua- 
tions in the currency, because its amount, at the 
several periods, ts reckoned per capita. This is a 



178 



EXCHANGE. 



far more correct mode of getting at the real changes 
than taking the absolute quantity. The upper line 
represents the fluctuations in the quantity of the 
currency, the lower line indicates its quality from 
time to time. 

The following table exhibits the extreme fluctua- 
tions in the quantity of the currency of the United 
States per capita, at different times, with the cor- 
responding variations per cent, in its quality: 

TABLE II. 

Showing the Extreme Fluctuations in the Currency of the United 
S'ates per Capita at different Times, with the Corresponding Vari- 
ations in its Quality, or the Proportion of Specie held for its Re- 
demption. 



Years. 

1834 

*1837 
1840 
1843 
1846 
1849 
1852 
1855 

*1857 
1858 
1859 


Currency 
per capita. 


Fluctuations. 


Per 

cent. 


Quality, or 

specie to 
circulation. 


Variations in 
quality. 


Per 

cent. 


11-82 

17-61 

10-70 

6-18 

y-94 

9-18 
13-31 
13-93 
15-50 
11-55 
14-90 




50 
39 
42 
61 

45 
13 
11 
26 
23 


\by o to 100 
13^ to 100 
18 to 100 
2 » to 100 
21 to 100 
21 to 100 
15% to 100 
14 " to 100 
13 to 100 
2'% to 100 
23 to 100 




33 
61 

oti 



27 
10 

7 
73 

2 


Expansion 
Contraction 

Expansion 

Contraction 

Expansion 

Contraction 
Expansion 


Depreciation 
Improvement 

Depreciation 

Stationary 

Depreciation 

Improvement 



* Years when the banks suspended. Observe the great ex- 
pansion between the year 1834 and 1837 of some fifty per cent.; 
and between 1849 and 1857 of some seventy per cent. 



TABLES AND DIAGRAMS. 



179 



TABLE III. 

The following Table exhibits the Composition of the Mixed Currencies 
of the several States of the Union, Jan. 1, 1860 ; that is, the Per- 
centage of Specie to the Circulation and Deposits in the Currency of 
each State: 





Per 
cent. 




Per 

cent. 


' 


Per 

cent. 


Louisiana 
Missouri . . 
Georgia . . 
Kentucky 
Tennessee 
North Carolina 
Indiana . . 
Alabama . . 
Maryland 






38-6 

37- 

23-7 

23-4 

23- 

22-08 

223 

22-2 

21-4 


Pennsylvania 
Iowa .... 
Virginia . . . 
New York . . 
South Carolina . 

Ohio 

Massachusetts . 
Florida .... 
Maine .... 


21-3 

20- 

16-7 

15-6 

15-5 

152 

151 

10-5 

10- 


Delaware . . . 
New Jersey . . 
Connecticut . . 
Rhode Island . 
New Hampshire 
Wisconsin . . 
Vermont . . . 
Michigan . . . 
Illinois .... 




99 

8-3 

7.5 

6.3 

5.7 

5-5 

4-2 

4- 

2-3 



But there are variations, not only in the general 
currency of the "[Tinted States, such as we have in- 
dicated, but also in the currency of each State, at 
different periods. 

We take that of Massachusetts, in illustration : 

TABLE IY. 

Exhibiting the Quality of the Currency of Massachusetts. 



Year 

Specie, per cent. . . 


1835. 


1837. 


1840. 


1843. 


1851. 


1857. 


1853. 


1860. 


7-1 


8 


18^ 


41-1 


7-5 


8-9 


146 


151 



Volumes of statistics might be given of the same 
general character; but these, it is presumed, are 
sufficient to show the fluctuating character of the mixed 
currency of the United States, both in quantity and 
quality; and of course, in degree, of all other coun- 
tries where such a currency exists : for it is, at all 
times and everywhere, the same in its general char- 
acteristics. 



180 EXCHANGE. 



CHAPTER VIII. 

MIXED CURRENCY AS A MEDIUM OF EXCHANGE. 

Having shown that a mixed currency is certain 
to expand and contract, without reference to the 
healthful and harmonious provisions of value, and 
to a degree more extreme and dangerous than a 
currency composed of real money, we are prepared 
to answer summarily the principal question. 

Does a mixed currency perform satisfactorily the 
functions of money? 

1st. Does it act efficiently as a medium of exchange ? 

Currency, regarded merely as a medium of ex- 
change, may be said to perform two offices : (a) To 
transfer commodities from one person to another. 
For this purpose, a mixed currency, having a circu- 
lation wholly of paper, is found to be portable, 
readily counted, easily carried, safely kept, and is, 
consequently, as convenient as any agent that could 
reasonably be desired, (b) To discharge indebted- 
ness between different parties. For this purpose, 
the thing to be desired is, that currency should be 
reliable ; that is, that there should be nothing in its 
own nature, which disqualifies "it to act fully, at all 
times, as a means of discharging obligations. 

Coin is always perfectly reliable for the payment 
of debts. When one debt has been discharged by 
it, the coin is just as available and acceptable for 
the discharge of a second or any succeeding debt. 



MEDIUM OF EXCHANGE. 181 

If gold and silver are called for by foreign obliga- 
tions, they retain their full power to discharge them. 

We here make two principal statements : 

A foreign demand is the only cause that can take 
away the real money of a people. We have seen 
that an indefinite number of causes may take away 
a currency based, in any degree, on credit. 

But, again, a foreign demand can only take away 
lis own amount of real money. We have seen that 
such a cause takes away an amount of mixed cur- 
rency of which the quantity required abroad is only 
one factor; the other factor being that number 
which represents the proportion between the bulk 
of the currency and the specie basis. In these two 
statements are clearly shown the entire unrelia- 
bility of mixed currency to discharge indebtedness. 
The man who promises to pay money can never 
know what may be the demand for specie, arising 
from a want of confidence in the banks, or from a 
necessity of export; and, of course, can never be 
safe in giving his notes predicated upon the cur- 
rency as it exists at the time. 

So far as the fluctuations we have shown derange 
general plans of business, distort prices, work injus- 
tice to one party of every bargain, and tend, by such 
inequalities and uncertainties, to discourage steady 
enterprise, they do not present themselves here for 
examination. We shall meet them, when discuss- 
ing a mixed currency as performing its function as 
a standard of value. We have to do here, not with 
the unfairness and injustice with which indebtedness 
is discharged under such a currency, but with the 
difficulty or impossibility of discharging it at all. 

16 



182 EXCHANGE. 

How does a mixed currency perform the functions 
of money, so far as discharging indebtedness in 
times of panic ? 

Let us suppose the case of the best man in the 
community. He has, in the legitimate course of 
business, contracted obligations, all within the limit 
of his abilities, now coming due. The banks are 
withdrawing their circulation as largely as possible, 
and do not mean to let it out again. The fact of his 
own excellent standing is of no moment in securing 
discounts; for there is just as much danger to the 
banks in letting him have their notes as any one else. 
It is the peculiar hardship of good men, in such 
times, that it is not their credit, but the credit (that 
is, the condition) of the banks, which is to decide 
the question of loans. With a value currency, on 
the other hand, the only matter of consideration is 
the solvency of the applicant himself. 

Of course, there are individuals and institutions, 
who, in consideration of high premiums and full 
security, will grant accommodations to a limited 
amount. A man may try to get along, sacrificing 
his property to save his name, and paj 7 ing twenty- 
four or thirty-six per cent, for loans. Perhaps, if 
others stood well, he might get through; but all are 
not so firm as himself. Most have less accumula- 
tion and less credit. His debtors fail to pay : how 
can he answer his creditors ? If he tries to go through, 
the payments are all one way, like the tracks about 
the lion's den. He has to pay both sides of the 
ledger. 

We have spoken of the credit element of a mixed 
currency. But panic, suspicion, apprehension, are 



MEDIUM OF EXCHANGE. 183 

the deadly enemies of credit : when these are 
aroused in the community, it cannot go abroad. 
Just as nearly as the object can be accomplished in 
the time given, all forms of credit will be withdrawn. 
But this will produce, in its several degrees, strin- 
gency, distress, panic, ruin. 

Is it, then, too much to say that credit is not reli- 
able for the discharge of indebtedness ? 

The element of credit introduces a direct hostility 
between the interests of those who control the cur- 
rency and those who wish to use it. The interest 
of the one requires that the notes shall be with- 
drawn. The interest, nay, the life, of the other 
requires that they shall be kept in circulation. Is 
there any such hostility in a value currency? Not 
at all. 

We have said that a sudden and severe contrac- 
tion is necessary whenever any cause threatens the 
specie basis of a mixed currency. Such a contrac- 
tion deprives the community of the means of meet- 
ing obligations undertaken when the currency was 
redundant. 

But this contraction, when it has become inevita- 
ble, does not take place without danger and loss to 
the banks themselves; danger and loss being the 
proper consequences of such operations. The banks 
make no more loans, or as few as possible. The 
means of discharging debts become less and less in 
the community each succeeding clay, until the rate of 
interest goes up to two or three per cent, a month, 
and money can hardly be had at all. 

The banks now find themselves in this dilemma: 
if they make loans, they must keep paying out their 



184 EXCHANGE. 

specie. This will soon become exhausted, and they 
must suspend and be dishonored. If they do not 
continue to accommodate their customers with the 
usual means of paying debts, the latter must suc- 
cumb. But, if their customers generally fail, the 
banks will lose their capital (it being chiefly in the 
form of notes given by individuals), and be perma- 
nently ruined. The history of the country shows 
on which horn of the dilemma they choose to be 
impaled. They suspend or stop specie payments, 
and then furnish the public with an abundance of 
their notes, such as they are. 

After this has been accomplished, and after the 
credit of the banks has been exchanged for the 
credit of the individuals who owe them, and after 
the demand for specie has ceased, the banks can 
resume payments. 



CHAPTER IX. 

MIXED CURRENCY AS A STANDARD OF VALUE. 

2d. Does a mixed currency act justly as a stand- 
ard of value ? 

This function of money is of a very important 
character. It lies at the foundation of all credit and 
all business calculations. If no man dealt with or 
trusted another, or waited a day to receive and con- 



STANDARD OF VALUE. 185 

sume the reward of his labor, there would be no 
great need of such a standard. But whenever there 
is the slightest exchange of commodities; whenever 
one man trusts another for recompense of service, 
or applies w r ealth and toil to an enterprise in the 
faith of receiving a reward at a future time, — a 
standard of value must be had, so that all can be 
done safely, expeditiously, and justly. Unless some- 
thing possessed the property of being a standard of 
value, all exchange would inevitably be confined to 
the gross and clumsy form of barter. It has already 
been included in the definition of money, that it 
performs this office. There is not a possibility of 
taking a scientific exception to this statement; yet 
a great deal of popular controversy has arisen, which 
we are obliged to stop here to notice. It has been 
said, that a dollar, for example, no more measures 
the value of wheat, than wheat does the value of the 
dollar; that "the dollar is wholly an arbitrary, con- 
ventional standard, forced on the people, unjustly, 
by legislative enactment." 



WHAT IS A STANDARD OF VALUE t 

Much confusion has undoubtedly been caused by 
mistaken views of what is really meant by a stand- 
ard of value. 

Suppose A sells B a tract of land, and agrees to 
take five hundred oxen in payment at a future day. 
The value of the land sold is, in this case, clearly 
measured by the oxen. These latter are the stand- 
ard by which the value of the land is determined. 
They form the money, or currency, by which the 

16* 



186 EXCHANGE. 

debt is legally and rightfully to be discharged. The 
oxen here occupy precisely the position of the dollar 
in ordinary contracts; and, if we suppose a com- 
munity in which they are altogether used as money, 
they become, without any necessary legal enact- 
ment, the universal standard, or that by which all 
other values are measured and expressed. Value 
must be determined in some way ; and it can only 
be done by comparison, — by measuring the land 
against oxen, wheat, gold, or something else that 
has value. 

As long as the land was measured, in the single 
instance, by the oxen, so long each measured the 
other alike ; but, when the use of the oxen was ex- 
tended to a comparison with each other commodity 
in the market, and all others together, then it became 
as improper to say that the land measured the oxen 
as to say that the wood or the cloth measure the 
yardstick by which their length and breadth are 
universally determined. 

So, by universal consent, mankind have agreed to 
measure everything by the precious metals. The 
laws of the United States, for example, enact that 
a certain coin, or planchet, of gold, nine-tenths fine, 
and weighing 25-^- grains, shall be called a dollar. 
That*is all the government does, all it ought to do. 
It compels no one to receive the dollar for anything, 
unless he has agreed to do so, any more than it compels 
him to receive hats or boots, wheat or cotton. But, 
the government having provided the coin, — that is, 
having certified to its weight and fineness, — the 
people, of their own choice, make use of it to 
measure every other thing. If they buy merchan- 



STANDARD OF VALUE. 187 

dise or land or cattle, they agree to take so many 
of these dollars in payment. As society in general 
adopts this way of determining the worth of prop- 
erty, the dollar, not by law, but by the voluntary 
preference of the people, becomes the measure, or 
standard, of value, in all transactions. So far as 
indebtedness between individuals is concerned, the 
government makes the dollar lawful tender; that 
is, if an individual has a just claim for a given 
number of dollars, the government enacts that the 
same number of dollars shall discharge the debt. 

Some writers have insisted that people should 
not be compelled to pay so many dollars in coin; 
then they should not promise dollars merely, but 
anything else. The establishment of such a standard 
is no wrong to the people; for it can easily be seen 
that payments in any other specific product would be 
more likely to involve hardships, e.g. an obligation to 
pay wheat or potatoes or cotton at any certain time, 
would bring infinitely more chances of distress re- 
sulting from a failure of the crop in that particular 
article. 

Neither is it an arbitrary act on the part of the 
government. It is purely a favor, an accommoda- 
tion, provided at great cost, for the benefit of the 
public. All objections, on the ground that it is 
arbitrary and unjust to compel men to discharge 
indebtedness in coin, are idle and absurd. Those 
who make them are bound to show, what has never 
yet been found, a better standard. 

We are now prepared to inquire how a mixed 
currency performs this function. 

We have seen its fluctuations, certain to occur, 



188 EXCHANGE. 

yet wholly uncertain as to direction and degree. 
These fluctuations make it plain enough, that, as a 
standard of value, a mixed currency must work in- 
justice and mischief, both in expansion and con- 
traction. Destructive as are the great occasional 
convulsions of trade, it is doubtful whether they 
produce as extensive evil as those minor disturb- 
ances which come every year, and, indeed, affect 
the entire transactions of the people. Arithmetic 
will hardly suffice to compute losses on a scale of 
such magnitude. Every bargain, in an industry 
of three thousand millions a year, is more or less 
vitiated by a harsh and unnatural change, one way 
or the other, of the currency. 

In the mildest form of such a currency, fluctua- 
tions to the extent of fifteen per cent, are shown by 
our diagrams to be as commonplace as yearly oc- 
currence can make them. If the yardstick were 
stretched to 42 inches one year, and shrunk to 30 
another, or both should happen the same year, 
without any possibility of anticipating the change, 
or any public proclamation of it, that fact would in- 
fluence manufactures, and every branch of produc- 
tion, greatly. 

Not to insist here that injustice between the parts 
is injury to the whole, or to dwell on the claims 
of public morals, if we turn to that large class es- 
pecially entitled to social and governmental care 
and consideration, who put out money at interest 
or in stocks, or rely on permanent salaries or wages 
for support, we shall here find a mischief without 
relief, a wrong without a remedy. These receive 
no appreciable benefit from any of the changes of a 



STANDARD OF VALUE. 189 

mixed currency, but all its evils fall heavy and un- 
broken upon them. 

PRICE. 

Currency performs the function of a standard of 
value, by fixing the price of commodities. In order 
to examine the subject intelligently, we shall be 
called first to notice the import of the term "price." 
It expresses the relation of all objects to a common 
measure or standard. For example, if the standard 
were sheep, it might be said that an ox was worth 
twenty sheep; the price of the ox would be twenty 
sheep. If the standard were dollars, — that is, certain 
well-known coins, — we should say that the ox was 
worth twenty dollars, and that would be its price. 
And it would be the same, if by dollars we meant 
only certain pieces of paper, promising to pay these 
coins. 

Price and value are often confounded together. 
The difference is this: value is the relation which 
all objects have to each other in exchange; while 
price is the relation of all commodities to one special 
object, viz., money or currency. 

Price may be increased without increasing value. 
For example: the price of flour in 1859 was $5; in 
1864 it was $10. Yet a barrel of flour had no more 
value at the latter date than before the war, because 
it would command no more of other value; that is, 
of broadcloth or tea, or other commodity. 

This discrepancy is found, not only at different 
periods in the same country, but between different 
countries at the same time. If all commodities in 
all countries were always measured by the same 



190 EXCHANGE. 

standard, price and value would be synonymous; 
but if, as often happens, a standard is adopted in 
one country less valuable than that of others, com- 
modities will adapt themselves to the currency, and 
the agreement between price and value is destroyed 
in the act of vitiating the standard. 

If an inventory of all the property belonging to 
the people of the United States had been made in 
1864, at the then prevailing prices, it would have 
amounted to nearly double what it was two years 
before, even though the quantity of all commodities 
had been identically the same. This, because prices 
were measured not by gold, but by credit, or the 
promises of government and the banks; but the 
value of all these commodities in the commerce of 
the world, and among themselves, was no greater 
than two years before. 

We here present a table, showing the historical 
variations in certain commodities, for a series of 
twenty-six years, under the undisturbed operation 
of a mixed-currency system. 

We have selected, for the purpose, the period 
1834-1859 inclusive, because it is the only one for 
which we have correct data, — that is, well-authenti- 
cated returns; and for the additional reason that 
the period was one of general peace, at home and 
abroad, and the articles selected are the most com- 
mon in use, whose prices are best known and least 
liable to variations, except from changes in the 
value of the currency. 



STANDARD OF VALUE. 



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Showing the Corresponding Fluctuations in Currency 

and Prices for 26 Years. 



$30- 
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27- 
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36 



2i38- 



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17 



STANDARD OF VALUE. 1^5 

These facts are shown geometrically in Diagram 
No. 2. 

This Diagram may require some explanation. 
The upper line represents the variations in the 
prices of the ten commodities chosen, for each year, 
from 1834 to 1859 inclusive, as already given in the 
tables. The lower line represents the bank cur- 
rency, per capita, for the corresponding years. 

Several important facts appear in this figure. 
The first to be noticed is the remarkable corre- 
spondence between the first and second lines, rising 
and falling together ; proving most conclusively, by 
their agreement through so long a series of years, 
that prices depend on the quantity of currency in 
circulation. 

It may be objected to thi3 table that it does not 
give a fair representation of prices, because one of 
the articles included (mess pork) is so much greater 
in value than the rest as to decide the character 
of the general result. We have therefore selected, 
from the same Financial Report (1863), ten other 
commodities, and present them in the following table, 
which, it will be seen, corroborates Table V., in 
that it affords the same general facts; viz., that prices 
rise and fall with the variations in the quantity of the cur- 
rency* The commodities taken are, — Northern corn, 
per bushel; anthracite coal, per ton; Liverpool coal, 
per chaldron; fish, per quintal; pig lead, per 100 
lbs.; sperm oil, per gall.; tallow, per 100 lbs.; mess 
beef, per bbh; lard, per 100 lbs.; and clover-seed, 
per 100 lbs. These, it will be seen, present a fair 
average as to the amount of value in each. 



196 EXCHANGE. 

The result obtained from a table, constructed 
from all these, is as follows : 

First six years, 1834 to 1839, the 

aggregate average price was . $72.51. — Currency, $14.24. 
1840 to 1845, the aggregate average 

price was 52.97. — Currency, 8.69. 

1846 to 1851, the aggregate average 

price was 54.08. — Currency, 10.23. 

1852 to 1857, the aggregate average 

price was 69.77. — Currency, 14.49. 

The correspondence exhibited, in the foregoing 
tables and diagram, between the quantity of cur- 
rency and the rate of prices, shows conclusively 
and impressively the effects of a mixed currency as 
a standard of value; viz., that as it expands or con- 
tracts from arbitrary but resistless causes, so prices 
are elevated or depressed, — variations which are 
often sudden and excessive. 

After making due allowance for those fluctua- 
tions which arise from supply and demand and 
from accidents, the evidence is most conclusive that 
the quantity of currency in existence does determine, 
essentially, the prices of commodities ; and that, as 
a mixed currency must fluctuate greatly in amount 
from its inherent properties, it cannot perform satis- 
factorily its function as a standard of value. 

The foregoing calculations, it will be observed, 
are made on the currency as estimated per capita. 
This is regarded as the most correct mode; since, 
as population increases, it is presumed that the in- 
dustry and trade of the country is increased- propor- 
tionally, and, if so, a larger amount of currency will 
be needed. If the increase of currency is greater 



STANDARD OF VALUE. 197 

than the increase of population, the per-capita calcu- 
lation will show it. 

It may be said at this point, that the same effect 
on prices would be produced by an equal expansion 
or contraction of a value currency. Granted; but 
such rapid and violent changes could not take place. 
Specie cannot be increased like paper. It costs 
labor, like corn or cotton, and is subject to the 
same laws of supply and demand. 

To observe further the operation of mixed cur- 
rency as a standard of value, and its effect, not on 
trade generally, but on ordinary production, let us 
take the case of the wheat-grower. 

A farmer, we will suppose, has a crop of one 
thousand bushels of wheat, which he sells at ninety 
cents per bushel, which is thirty cents more than it 
would bring under a real-money system. Now, the 
question — which is of great concern to him, and, if 
to him, to all producers of all commodities — is, 
whether he gains or loses by this transaction. 

Take a single bushel. He gets ninety cents for 
it. With that, he purchases six pounds of sugar at 
fifteen cents. This, he observes, is five cents more 
than he used to pay for sugar, when his wheat was 
but sixty cents. He perceives, that, having paid 
five cents per pound extra on the sugar, he has just 
lost all the additional price of thirty cents on the 
bushel of wheat. 

This transaction of selling one bushel of w^heat 
for six pounds of sugar fairly represents the result 
of selling the whole crop, and investing the pro- 
ceeds in other kinds of property; because all com- 
modities have alike risen in price. 

17* 



198 EXCHANGE. 

But it may be asked , Suppose the farmer paid 
a debt of nine hundred dollars with the money he 
obtained for his wheat, has he not gained by the 
rise in price? If he contracted the debt before the 
rise, he certainly has made a large gain in the pay- 
ment of the debt; for, as things were when the debt 
was contracted, it would have taken fifteen hundred 
bushels of wheat at sixty cents to pay nine hundred 
dollars. Here he has gained three hundred dollars, 
or saved five hundred bushels of wheat, less, be it 
recollected, the extra expense of fifty dollars in the 
raising of the crop. His net gain is two hundred 
and fifty dollars. 

But how is it with his creditor? He finds, on re- 
investing the money in cattle, horses, sheep, ploughs, 
wagons, and the like, that the nine hundred dollars 
will purchase but two-thirds as much as when he 
loaned the money. He has lost three hundred dol- 
lars. The farmer promised to pay " dollars;" but 
he did not, he only paid the promise of dollars; 
and these promises were so easily made, became so 
plenty, proved so cheap, that they were really worth 
but two-thirds of what they professed to be. This 
he found when he came to use them in buying 
articles for his family. 

Much misapprehension arises from confounding 
special and general prices, or the price of an indi- 
vidual article, as distinguished from that of the great 
mass of commodities. We are told that a variety of 
considerations enter into and affect prices; viz., de- 
mand and supply, cost of production, etc. etc. All 
this is perfectly true of an individual article, whose 
price may and does vary from time to time, as com- 



EFFECTS OF A MIXED CURRENCY. 199 

pared with other commodities, under the operation 
of these causes. One article may be very high, 
while all others are low, or the reverse; but this 
does not tend to disprove the principle, that gen- 
eral prices are determined by the quantity of the 
currency. 



CHAPTER X. 

EFFECTS OF A MIXED CURRENCY. 

We stated two principal questions in regard to 
mixed currency: 

1st. Does it perform satisfactorily the functions 
of money? 

2d. What, and how great, are its effects on public 
interests, beyond the proper effects of value cur- 
rency? 

In the four chapters immediately preceding, we 
have discussed the first question, with a result un- 
favorable to such a currency. We now approach 
the second of these questions, — What are the effects 
of mixed currency. 

I. A mixed currency endangers domestic tran- 
quillity. This is a proposition which we shall con- 
sider solely with reference to society in the United 
States. 

That mixed-currency banks can never, in fact, 
fulfil their agreements, if called on to do so, we have 
already shown; and, since they are ever liable to 



200 EXCHANGE. 

such calls, there is constant danger from this source. 
At any moment, there may reasonably arise, through 
this cause, such general dissatisfaction among the 
lower classes as shall tend to extensive disturbances 
of the public peace. 

This danger is greatly enhanced by the fact, that, 
within the last forty years, there has been created a 
vast system of savings institutions, which receive 
the money individuals are disposed to deposit with 
them, and promise to return it on demand, or at 
short notice; generally on demand. 

Now, should any cause operate by which confi- 
dence in the solvency of the general banking system 
of the country is shaken, it will naturally, nay, in- 
evitably happen that a run will be made on the 
savings institutions. These can only meet their en- 
gagements by drawing on the banks. But, if these 
have all their resources strained to meet the ordi- 
nary wants of the business community, how cau 
the drafts of the savings banks be met? How can 
currency be supplied for this extraordinary demand? 
This question can only be intelligently answered by 
reference to the condition of both these kinds of 
institutions. 

"We will, for this purpose, take the currency of 
Massachusetts as it stood in 1860: 

The savings banks had on deposit ...... $45,000,000 

, . . _ f deposits 30,000,000 

The currency banks had < .-■,,. «* ™a /w\ 

J I circulation 25,000,000 

Total $100,000,000 

The currency banks had specie 6,500,000 

Difference $93,500,000 



EFFECTS OF A MIXED CURRENCY. 201 

Here, then, are legal immediate demands, upon 
the currency banks, of fifty-five millions; and, upon 
the savings banks, of forty-five millions. Suppose 
there should arise some dissatisfaction, or public 
uneasiness, which should prompt to a run on both 
these kinds of banks. It certainly is possible, not 
to say probable. Suppose that the institutions for 
savings are called on for only one-fourth of their 
deposits. They must look to the banks for eleven 
millions of currency at once. The banks begin to 
pay out their bills; but the specie is at once de- 
manded, and of that they have but six and one-half 
millions against their own immediate liabilities of 
fifty-five millions. They could not stand a run 
of two days, because their own deposits would be 
drawn in specie just as soon as the real state of 
affairs was discovered. The banks must, therefore, 
suspend at once. What would naturally follow in 
a time of great public excitement, when the in- 
terests of some party or faction required a general 
breaking-up of society? 

It is not enough to evade this, by saying that 
such an event has never happened, though the 
banks have several times suspended. That is quite 
true; yet it does not follow that it never will. Pre- 
vious suspensions have originated in commercial 
causes. Suppose, on the other hand, a run w T ere made 
on account of political or social disturbances; that the 
laboring class — factory operatives, railroad gangs, 
the servants in our families — were incited to demand 
their deposits in the savings institutions. Could 
they not prostrate the entire currency in twenty-four 
hours, by merel} 7 demanding their just dues? 



202 EXCHANGE. 

Should the present national banks resume specie 
payments, under the mixed-currency system, they 
will be exposed to the same dangers. 

II. A mixed currency has a demoralizing influ- 
ence upon a community, industrially and socially. 

If what has been said in regard to this kind of 
currency is correct, such an influence cannot for a 
moment be questioned. If it excites to wild and 
extravagant speculation at one time, and plunges 
its victims into bankruptcy and ruin without fault 
at another; if it excites hopes and expectations 
which must necessarily come to disappointment 
and distress ; if it increases to an enormous extent 
the natural risks of trade, and exposes all business 
operations to an incalculable hazard, — then the mer- 
cantile character and the general tone of morals 
cannot but be unfavorably affected. 

III. A mixed currency endangers the national 
safety in war. 

With the existing ideas and institutions of society, 
and while no preparations are made in time of peace 
to prevent the recurrence of war, but every effort 
to meet it, and thus, of course, to strengthen and 
perpetuate the war system, it becomes a matter of 
great interest to inquire as to the effects of a mixed 
currency on the safety of a nation in the event 
of war. 

We have already shown that a mixed currency 
is greatly affected by a demand for specie to send 
abroad. Hence, as war must always call for an 
extraordinary importation of foreign merchandise 
and materials, and as such extraordinary importa- 
tion must require the shipment of specie, a con- 



EFFECTS OF A MIXED CURRENCY. 203 

traction and panic, or speedy suspension, must be 
the certain consequence. 

Again, since so great a part of a mixed currency 
usually consists of credit, and since credit rests 
wholly on confidence, anything which impairs the 
latter compels a contraction or withdrawal of the 
currency. 

Now, war generally, we may say uniformly, does 
this: for how long it may last, how great may be 
the demand for money, how large the destruction 
of capital, and what the final issue, must be a matter 
of doubt; and therefore its occurrence always im- 
pairs public confidence to a greater or less extent. 

These two causes, then, are at once brought to 
bear upon a mixed currency with fatal effect. The 
result has always been, and always must be, that, 
under such circumstances, the mixed-currency banks 
suspend; because their circulation cannot be with- 
drawn at the time without producing universal 
bankruptcy, annihilating their own capital, and 
stopping the wheels of government. It was so 
in England during the war with Napolen; in the 
United^ States during the war of 1812, and in the 
time of the great secession movement. 

What comes in consequence of all this? The 
nation is obliged to carry on its vast pecuniary 
operations with a broken-down currency. This, 
of course, involves the finances in great embar- 
rassment, vastly increases the public expenditures 
and the national indebtness. The whole financial 
system of the country is crippled, and becomes as 
weak as its currency. 

No better illustration of the truth of this state- 



204 EXCHANGE. 

ment was perhaps ever afforded than that found in 
the experience of the United States during its great 
struggle. The country was suddenly involved in a 
stupendous war, — technically, only a civil war, but, 
practically, a great international struggle, so vast 
were its dimensions, so strictly was it sectional ; a 
conflict between two different civilizations, on dif- 
ferent though contiguous portions of the American 
continent. 

At the commencement of the struggle, the cur- 
rency, as we have before said, amounted, circula- 
tion and deposits, to four hundred and sixty mil- 
lions against eighty-three millions of specie. Upon 
the mere threat of secession, so greatly did it impair 
public confidence that the banks at the South began 
to suspend ; and their example was followed until 
most of the Western, and many of the Eastern, were 
in a state of suspension. After the first shock had 
passed by, most of the banks in the loyal States re- 
sumed specie payments ; but the large demands of the 
government, in the course of about a twelvemonth, 
compelled a universal suspension by both the na- 
tional treasury and the banks, and the whole country 
was thrown upon an irredeemable paper currency. 
All this happened, not because the currency was so 
redundant, but because it was so unsound. Had it 
been based in full on specie, this disastrous result 
would have been avoided. 

In time of war, a mixed currency always becomes 
an unmixed paper currency. Being at all times 
really inconvertible, any disturbance in public affairs 
which destroys, or even essentially impairs public 
confidence, will cause a general suspension of the 



EFFECTS OF A MIXED CURRENCY. 205 

mixed-currency banks, and, of course, of the govern- 
ment, and the substitution of a credit for a value 
currency. 

If these are the natural and inevitable results of a 
mixed currency in such an event, is it not true that 
a people imposing on themselves a mixed currency 
can never be financially "prepared for war?'' 

IV. A mixed currency discourages domestic 
manufactures, disturbs the proper relation of ex- 
ports and imports, and puts the balance of trade 
against the people employing the greater proportion 
of credit. 

These effects will be recognized as injurious by 
all classes of persons; but those who are so solici- 
tous for the positive encouragement of domestic 
manufactures, and for the restraint of imports, as 
to favor the enactment of prohibitory or protective 
laws imposing duties on the foreign article, will, of 
course, most fully appreciate and deeply feel this 
tendency of a mixed currency. 

The course of this will be best observed in an 
illustration from the manufacture of a specific 
article : 

"Suppose that a certain kind of broadcloth can be afforded by 
the foreign manufacturer, delivered at New York, for two dollars 
per yard ; the same article might be made in this country, but 
would cost two dollars a yard, without any profit whatever. Of 
course, then, we cannot afford to make the article. The govern- 
ment, in order to encourage its production here, lays a duty upon 
the imported article of fifty cents per yard ; but, at the same time, 
establishes banks which manufacture a mixed currency, and double 
the natural amount of money. The American manufacturer now 
proceeds to erect his mills; but wages and materials have so ad- 
vanced in price, by the expansion of the currency, that it costs 
him twenty-five to fifty per cent, more than it otherwise would have 

18 



206 EXCHANGE. 

done He builds machinery ; but this also costs him proportionally 
high. He proceeds to purchase raw materials, and employ hibor 
in manufacturing ; but all are advanced in price for the same reason. 
His own expenses for living are also greater ; and, should he be 
obliged to hire money, that will generally be found to have ad- 
vanced in price, or rate of interest. Under these circumstances, he 
cannot make the cloth so as to afford a profit ; and it will not be 
surprising if he should clamor for more protection. But it may 
be said, that the same causes that have advanced the expenses of 
living, and, consequently, of labor, will equally have advanced 
the price of broadcloth. Not so. The price of the broadcloth 
will be determined by the rate at which it can be afforded by the 
foreign manufacturer ; and if he can pay the duty of fifty cents 
per yard, and yet obtain a fair profit, he will send all the market 
demands. 

u There is another view of the matter. Suppose we would ex- 
port our plain cottons, for example, to India. We there meet the 
English article, made under a currency more valuable than our 
own, which can consequently be afforded for less; since, with the 
same amount of the money of India (i.e. value money), the English 
manufacturer can pay for much more labor in England than the 
American manufacture can in America."* 

During the continuance of the compromise tariff, 
established in 1832, and which terminated in 1842, 
the currency varied from $11.82 to $17.61 per 
capita, equal to an expansion of more than fifty 
per cent.; while, during the same period, prices 
(as shown by table V., pp. 191, 192) fluctuated to a 
greater extent. The variation in prices was larger 
even than the percentage of protective duties. 

So the tariff of 1842, which began to take effect 
in 1843, when the currency was $6.18 per capita, 
was more than counterbalanced by the expansion 
of the currency to $9.94 in 1846. But the manu- 
facturer suffered as much from the periodical con- 

* "Walker on Money and Mixed Currency, p. 39. 



EFFECTS OF A MIXED CURRENCY. 207 

tractions as from the expansions that preceded 
them ; for while, by the latter, the duties were 
rendered nugatory, all business men met great 
losses from the failures and the general derange- 
ment and stagnation which the former produced. 
No tariff of reasonable extent, such as the people 
of the whole nation would endure, can ever place 
the domestic manufacturer in a position of security 
and of reliable profit, while competing with such 
an immense advance in prices as must certainly 
accompany an expansion of the currency. The 
average tariff in 1868 was forty-eight per cent., but 
the cost of manufacturing, owing to the deprecia- 
tion of the currency, was some sixty per cent., so 
that the duties designed to be protective were more 
than neutralized. 

The terrific struggles through which American 
manufacturers have passed, ever since the establish- 
ment of the first tariff in 1816, have been caused, 
not by foreign competition, solely or mostly, but by 
a false and delusive domestic currency. 

PROTECTION AND CURRENCY. 

There is a still more striking view of the connec- 
tion between protection and currency. It is gen- 
erally believed that high tariff duties restrict the 
importation and consumption of foreign merchan- 
dise. It is a popular cry, that "government ought 
to lay heavy duties, so as to prevent an adverse bal- 
ance of trade, and the consequent shipment of specie 
abroad." 

It is true, as a principle, that, the greater the 



208 EXCHANGE. 

price, the less the consumption; and that, as the 
imposition of taxes on the foreign article increases 
price, so it must, other things equal, decrease con- 
sumption. But other things are not equal. They 
have not been so in this country during this century. 
The facts in the case do not show that heavy duties 
necessarily reduce the consumption of foreign arti- 
cles. On the contrary, it is found that the largest 
importation has often taken place during the ex- 
istence of the highest tariffs. Diagram No. 3 will 
exhibit the relations of the tariffs to the amount of 
imports, from 1816 to 1861. 

The tariff* of 1816, the first ever laid for protection, 
averaged twenty-one per cent.; it was increased, as 
we have seen, to forty-two per cent., and became 
nearly prohibitory on many articles, especially the 
coarse woollens worn by the slaves. This gave such 
great umbrage to the cotton-growing States that 
the compromise tariff of 1832 was enacted, which 
brought the duties down to twenty per cent, in 1842. 
This was, unfortunately, a time of great depression 
of prices and trade, growing out of the monetary 
revulsion through which the country had just passed. 
A strong and successful appeal was made for an in- 
crease of duties; and the tariff known as that of 
1842 was established, giving high protection. This 
occasioned so much dissatisfaction, that, after four 
years, the rates were again reduced by the tariff of 
1846. This remained in operation for the unpre- 
cedented period of eleven years, when another re- 
duction was effected by the tariff of 1857. This 
lasted four years, when the necessities of the treas- 
ury, in consequence of war, induced the imposition 



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EFFECTS OF A MIXED CURRENCY. 211 

of higher duties in 1861, since which they have been 
still further advanced. 



WHAT THE DIAGRAM TEACHES. 

With these explanations of the diagram, we are 
prepared to inquire into its teachings. 

Is there any such correspondence between the 
two lines as to indicate that one is governed by the 
other? Does it appear that, as the tariff rises, im- 
portations fall off; that, as it is lowered, importa- 
tions increase? Certainly not. We can perceive 
no such striking correspondence between the two 
lines as to lead us to believe that importations are 
governed greatly by the tariff. There seems to be 
a disturbing influence which deranges the natural 
movement of the line of consumption. The two 
lines clearly do not show such a correspondence as 
to prove that importations are uniformly governed 
by the tariff. 

IMPORTATION AND CURRENCY. 

A reference to Diagram No. 4 will, we think, 
show the disturbing cause, or rather by what law 
importations are controlled. In this we find a cor- 
respondence so uniform and persistent as to decide 
the question, beyond dispute, that the demand for 
foreign merchandise depends upon the quantity of 
currency in the country; and, as that increases or 
diminishes, so does the consumption of imported 
articles. The immense expansion of 1836 carried 
the consumption up to $10.93 per capita, under a 
tariff of 31.6 per cent.; while, under a lower one, in 



212 EXCHANGE. 

1840, the consumption was but $5.21. Whereas, if 
consumption is governed by the tariff, it should 
have been higher than in 1836. 

According to the natural effects of the tariff (the 
enhanced price of foreign commodities), consump- 
tion should be uniformly highest when the tariff' is 
lowest, and vice versa. We have seen that such cor- 
respondence does not take place. We then con- 
clude that some other force or influence operates to 
neutralize the power of protective duties, and even 
reverse the natural effect. The last diagram proves 
the existence of such a cause, and shows its effects 
on imports. 

Hence we lay it down as a principle that a sound 
currency is more important as affording protection 
against foreign competition than a high tariff. 



CHAPTER XL 

EFFECTS OF A MIXED CURRENCY (concluded). 

V. A mixed currency causes unnatural and ex- 
treme fluctuations in the rate of interest. 

If a mixed currency is in its nature constantly fluct- 
uating, at one time very redundant, at another very 
scarce, it would seem to follow, as a necessary conse- 
quence, that the rate of interest, which is merely 
the sum paid for the use of money, or currency, 
would be equally so. Practically, we find that such 
is the fact. While the currency is in the process of 
expansion, and is enlarged by new issues from day 



DIAGRAM N a 4. 



Showing the Volume of the Currency and the Imports 
for Consumption for 26 Years. 



460 Millions of Currency- 
450 



440 



1859 




EFFECTS OF A MIXED CURRENCY. 215 

to day, money must be plenty, and the rate of inter- 
est low. 

When the currency has become largely increased, 
and speculation has been engendered by the rise of 
prices, the demand for money will increase faster 
than the supply, and the rate of interest will begin 
to advance. 

When the banks have arrived at that point at 
which they must of necessity contract, and they be- 
gin to take in their currency, and, of course, to create 
a scarcity of the means of paying debts, then the rate 
of interest will rise to a very high point, not unfre- 
quently to four or six times its natural rate. 

The indebtedness which the expansion has en- 
couraged must now be met, at all events and at any 
sacrifice. Sales of property cannot be made for 
cash, because all cash resources are needed to meet 
existing indebtedness, rapidly maturing; and, con- 
sequently, a great pressure is made upon the money 
market. The severity of this is indicated by the 
rate of interest. 

Such being the facts in the case, we need not be 
surprised to find that the highest rates of interest 
are paid at times when there is far more than the 
average amount of currency. 

On the other hand, when indebtedness has been 
discharged, both by the banks and individuals, and 
the currency reduced to very moderate dimensions, 
we find the rate of interest very low. Take the 
years 1837 and 1857. Interest was up to three per 
cent, per month ; yet there was a greater amount of 
currency, per capita, then in use, than ever before. 
Take the years 1842-43, for an opposite example, 



216 EXCHANGE. 

when there was less currency than ever before. 
Money was very plenty and very cheap. 

This law has governed the rate of interest at all 
times under our currency, and is strikingly ex- 
hibited in our Diagram No. 5, inserted herewith. 

By this diagram, we see, — 

First. The frequent and extreme fluctuations in 
the rate of interest. 

Second. That the highest rates of interest occur 
when there is the greatest expansion of the cur- 
rency, as witness 1836, 1839, 1854, and 1857. 

Third. That the lowest rates of interest are found 
where there is the smallest amount of currency, as 
in 1843-45. 

Fourth. We observe some remarkable exceptions 
to these general facts. 

In 1834, we find the interest up to twenty-four 
per cent., while, in the following year, it was down 
to five. This is easily explained by those cognizant 
of the facts. The United-States Bank then in exist- 
ence was extremely desirous of recharter; and, to 
secure this, it was thought necessary to produce a 
tremendous pressure in the money market. The 
result was a high rate of interest. The following 
year, 1835, the bank took the opposite course, and 
interest fell below the natural rate. 

In 1836, there was a great expansion of the cur- 
rency, as shown in the lower line of the diagram. 
Speculation was rife, the banks could not meet the 
demand for money, and interest went up to thirty 
per cent. In 1837, the banks suspended, then is- 
sued freely, and interest went down to a low point. 
In 1838, the work of contraction began ; a multi- 






DIAGRAM N°- 5. 

Showing the Fluctuations in the Rate of Interest and 
Volume of Currency. 

1857 



36 

35 










31 










$t 










32 










31 










30 


1836 










*>9 










- 






28 














27 














26 














25 














21 


1834 














23 


















22 


















21 


















20 


















19 


















18 








38 




1847 53 






17 


























16 


























15 
















49 




55 






14 


































13 


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-1859" 



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42' 



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45 rn 



1S43 



Currency Per CaJ>iia 



19 



EFFECTS OF A MIXED CURRENCY. 219 

tude of banks in the West and South failed, and the 
pressure upon the solvent banks became great ; in- 
terest went" up to eighteen per cent. The year 1839 
witnessed still greater distress for money. Resump- 
tion of specie payments by the banks began to take 
place, and consequently a great contraction of the 
currency. There was also a very large exportation 
of specie that year; and, by these combined causes, 
the rate of interest ran up to thirty-six per cent. In 
1840, on the other hand, more specie was imported 
than exported. The indebtedness of the country 
had been, in great measure, discharged, and money 
was plenty. Interest was down to five or six per 
cent. In 1841, there was again an export of specie, 
and also in 1842 ; and the rate of interest went up 
to nine and twelve per cent. But, in 1843, the low- 
est point was reached, more than twenty millions 
of gold were imported, and money was a drug. In- 
terest was, for awhile, almost nominal. Large 
amounts were negotiated as low as three and a half 
per cent. 

From this time forward, we have only the natural 
results of a mixed currency in its fluctuations. In 
1847, the rate of interest was high, — eighteen per 
cent, — though the currency was not redundant. 
This was the year of the Irish famine ; and we im- 
ported twenty-two millions of gold above the ex- 
ports. From 1849 to 1857, the currency was 
constantly increasing. Severe fluctuations in the 
money market took place, but no grand revulsion 
until 1857, when so great was the inflation of the 
currency, and consequently the general credits of 
the country, that an explosion took place ; interest 



220 EXCHANGE. 

going up to thirty-six per cent. All these facts are 
significant, and form an essential part of the history 
of mixed-currency banking. 

Here it seems proper to mention the remarkable 
fact, that the rate of interest is now, 1871, and has 
been for some time, much higher upon mortgages 
than upon business paper. Up to the issue of legal- 
tender notes, loans on mortgage could uniformly 
be negotiated at a lower rate than the current dis- 
count rate at the banks. When the latter was six 
to eight per cent., the former, for large sums, was 
often but five. Now the case is reversed, and mort- 
gages are being made at seven to ten per cent, in 
the Eastern States and much higher in the Western, 
while money is plenty on call or short time at four 
to six. The reason is obvious. Capitalists, owing 
to the abnormal condition of the currency, choose 
to have their funds where they can command them 
at short notice, while rents being very high, those 
wishing for houses, stores, etc., can afford to pay a 
high rate for the means wherewith to build. 



UNEQUAL EFFECTS OF MIXED CURRENCY UPON DIFFER- 
ENT INTERESTS. 

Unfavorable as the influence of a mixed currency 
is upon the general industry of the United States, 
it will upon examination be found far more detri- 
mental to some branches of production than to 
others, and that agriculture, the chief interest of 
the nation, is by far the greatest sufferer. The 
reason of this can, we think, be made sufficiently 
apparent. 



EFFECTS OF A MIXED CURRENCY. 221 

Other things equal, the general average of prices 
is determined by the quantity of currency in circu- 
lation, and prices advauce or recede as that is in- 
creased or diminished. A particular article at a 
particular time, owing to some circumstance con- 
nected with its production or the demand for it, 
may rise or fall in price as compared with other 
commodities, but the general prices of all objects 
of value will ever depend upon the quantity of cur- 
rency existing in the country in which they are pro- 
duced and sold. This is an economic law as certain 
as any of the laws of Nature. 

It must be borne in mind, however, that if the 
currency of the country be a local or unnatural one 
— that is, different from the currency of commerce, 
which is gold and silver — it will accurately measure 
only those commodities which are wholly produced 
and consumed within the country where such local 
currency is used. If there be any commodity of 
which the country necessarily raises a surplus that 
must be exported, and the local currency is in 
excess of its natural volume, or what it would be if 
composed of coin, such article will not be measured 
correctly as compared with all others, because its 
price depends upon its value for shipment to a for- 
eign market, where it will be measured by the gold 
standard. Such article is neither raised in value by 
expansion nor depressed by contraction of the local 
currency. The reason is obvious. There cannot 
be two prices for the same thing at the same time, 
and what it is worth for shipment will determine 
the value of the whole product, whether consumed 
at home or sent abroad. 

19* 



222 



EXCHANGE. 



On the other hand, all articles produced and con- 
sumed wholly at home, like boots and shoes, farming- 
machines and implements, furniture, carriages and 
the like, are measured by the existing currency, 
without reference to the gold premium, except to 
the extent that the materials of which they are 
composed are of foreign production, upon which 
the gold premium has been charged. All these 
home-produced and home-consumed articles feel the 
full effects of a redundant currency, however great 
that redundancy. 

The position of the farmer or planter, and, we 
may add, of the man who mines for the precious 
metals or petroleum, is this: The commodities he is 
compelled to purchase for his necessary consump- 
tion are raised in price by every unnatural expan- 
sion of the currency, however great it may be, 
while his own commodities are not raised in price 
at all by such expansion. This may be seen in the 
facts presented in the following table : 

TABLE VI. 

Showing the Price of Flour and Cotton from 1846 to 1859 inclusive 
(14 years), with the Currency per Capita, and General Prices at 
corresponding Dates. 





«4-i 


«m . 


£$ 






CM 


C*-i . 


£J 




YEARS. 


o .■ 


o a 
o ^ 




=3 00 


YEARS. 


O ^ 

CD 3 

o o 


o a 
© o 


25 


g.2 




££ 


S- o 


5% 






A* 5 


£ o 


81 


a, u 

0^ 


184G . . 


$5.06 


7Vo 


$9.94 


$16.69 


1853 . . 


$5.77 


1014 


$13.65 


$22.47 


1847 . . 


6.67 


8 


9.38 


20.82 


1854. . 


8.94 


9 


14.95 


20.84 


1848 . . 


5.96 


W, 


10.67 


16.53 


1855 . . 


8.76 


9¥ 


13.93 


22.78 


1849 . . 


5.50 


8 


9.18 


16.45 


1856 . . 


6.42 


10^ 


14.64 


25.02 


1850 . 


5.55 


12 


10.39 


16.20 


1857 . . 


5.78 


14 


15.50 


25.13 


1851 . . 


4.52 


10 


11.86 


19.42 


1858 . . 


4.30 


13 


11.55 


21.92 


1852 . . 


5.00 


9 


13.31 


21.42 


1859 . . 


5.10 


u« 


14.90 


22.11 



EFFECTS OF A MIXED CURRENCY. 223 

This table proves conclusively that while prices 
in general conform remarkably to the existing quan- 
tity of currency, flour and cotton do not rise and 
fall with its fluctuations. Flour, for example, in 
1846, with a currency of 9.94, was at $5.06; while 
in 1851, when the currency had risen to 11.86, an 
advance of twenty per cent., flour was at $4.50, a 
decline of ten per cent. Cotton was at 12 cents, 
under a currency of 10.39, in 1850, and but 9 cents, 
under a currency of 14.95, in 1854. 

If the views here presented are sound (and they 
are certainly based upon indisputable facts), we have 
established a most important principle, viz., that 
while no industrial interest is benefited by credit 
expansions of the currency, one branch of produc- 
tion, and that by far the largest, is most essentially 
and unjustly injured, and made to bear by far the 
greater part of the loss inseparable from the use of 
a fluctuating and defective standard of value; specu- 
lators and the issuers of false currency being the 
only gainers by its use. 

The truthfulness of the principle laid down is 
more strikingly shown at the present than any former 
period. 

The prices of agricultural products are now (1871) 
nearly or quite as low, and in some cases lower, than 
in 1860. Superfine flour has been quoted during 
the present year in New York at $4.45 to $4.95, and 
mess pork, worth in 1860 $18.25, has been sold at 
$14.50. 

Wheat has been no higher in 1871 with a currency 
(circulation and deposits) of $30 per capita, than in 
1860 with a currency of $14 50 per capita. 



224 EXCHANGE. 

If we contrast prices of the farmer's staples with 
those of articles wholly produced and consumed at 
home, like boots and shoes, farming tools and 
machines, furniture, carriages, and the like, which 
are measured by the existing currency and varied 
in price some 50 to 75 per cent., we shall realize how 
greatly this class of persons is injured; yet these 
results are simply an exaggeration of an ordinary 
mixed currency expansion such as the country has 
long been familiar with. 

But this is not all the damage the agriculturist 
suffers, because while he gets no more for his pro- 
ducts, the wages he pays are nearly 50 per cent, 
higher than in 1860. 

The productive industry of the country may be 
divided into three principal kin ds, — viz. , agricultural, 
manufacturing, and mercantile, — the first employing 
a large majority of the whole population, and of 
course producing a large surplus of commodities to 
be sent abroad, while the products of the second are 
consumed almost entirely at home. The great staple 
of agriculture is corn (to use the English term) in its 
varieties, — wheat, maize, rye, oats, barley, etc. The 
average value of either one of these determines the 
value of all the others, because if any one — wheat, 
for example — brings a higher price in proportion to 
its cost, the production of that article is certain to 
be increased until reduced in price to an equality with 
the rest. 

It may be thought that cotton must be an excep- 
tion to what we have laid down, since its price is 
now greater than before the war. It is worth at pres- 



MANUFACTURES. 225 

eut, say 20 cents per pound,* while from 1850 to 1860 
the average was but 10J cents. This higher price, 
however, is owing to the fact that the production of 
cotton has been greatly diminished by the effects of 
the late contest in demoralizing labor. If the pro- 
duct were now as large in proportion as in I860, the 
price would doubtless be as low. The amount 
raised in 1850 was 2,096,706 bales; in 1860 it was 
4,669,770 bales, — an increase of 130 per cent, in ten 
years. Had the production of cotton gone on at the 
same rate of increase, the crop of 1870 would have 
reached 10,740,471 bales ! With such a crop, or 
even two-thirds of that quantity, would prices now 
be higher than in 1860 ? Cotton, we may rest as- 
sured, will not be found an exception to the law 
which governs prices when its production has been 
fully restored. The planter will then have as much 
reason to complain of the currency as the wheat- 
grower. There will then be as much occasion for 
" despondency" at the South as there now is at the 
West. 

MANUFACTURES. 

The manufacturing interests of the country pre- 
sent a strong contrast to those of agriculture, the 
products of the former being measured wholly by 
the local, the latter by the general, standard of value. 
Hence it is comparatively a matter of indifference 
to the manufacturer how T much the cost of his goods 
is enhanced by defective currency, because he can 
obtain correspondingly high prices. The people 

* It has been as low as 15 cents during the year 1871. 



226 EXCHANGE. 

must have his wares and pay him a profit. It is 
only when he would send his goods abroad that he 
feels the effect of the false standard of value under 
which he has produced his commodities. He then 
finds that, his goods having cost him much more 
than they ought to have done, he cannot compete in 
foreign markets as he could before the war. In 1860 
our export of cotton manufactures was about eleven 
millions, — now only one-third that amount. Thus, 
our export of cotton fabrics, which ought to be large, 
— at least as much as twenty-five millions, according 
to the rate of increase for several years before the 
war, — is now hardly worthy of notice. Although 
thus deprived of an outlet for their goods, and suf- 
fering many other disadvantages from unsound cur- 
rency, manufacturers are able to achieve a good 
degree of prosperity compared with agriculturists. In 
fact, they gain by the low price of breadstuffs, be- 
cause they are enabled to support their workmen at 
a lower rate. Protected by high tariff-duties from 
foreign competition, they have the entire command 
of the home market, while the farmer, depending 
upon the foreign demand for the sale of his surplus, 
must sell his whole crop at the gold value. 

TRADE AND TRANSPORTATION. 

The mercantile and transportation class, whose 
business is transferring and exchanging the values 
that others have created, are but partially affected 
by the present state of the circulating medium. They 
make all their transactions under the same standard 
of value, and thus secure their profits without difli- 



TRADE AND TRANSPORTATION. 227 

culty. The aggregate sales of merchants are larger 
in amount than formerly, because prices are so much 
higher; but, as an offset to this, their expenses are 
as much increased as their gross profits ; and besides, 
their profits when realized are in the currency of the 
country, worth for the purchase of commodities, the 
building of houses, stores, or ships, but a little more 
than half what it was when the currency was sound. 
In addition to this, the mercantile classes are con- 
stantly exposed to the danger of a great financial 
crisis, which may come at any time, and is certain 
to come sooner or later, unless suitable measures are 
seasonably taken for the gradual restoration of the 
currency to par with gold.* 

* A part of this argument is taken from an article by the author 
published in Lippincott's Magazine for Nov., 1871. 



228 EXCHANGE. 



CHAPTER XII. 

FALLACIES REGARDING A MIXED CURRENCY. 

Fallacy 1st That by means of mixed-currency 
banks, the capital of a country is greatly increased. 

Capital is the portion of wealth employed in re- 
production. Money is one form of capital. To the 
banker or money-lender, it may be his entire capital; 
but, to the merchant, manufacturer, or agriculturist, 
it is capital only as the instrument by which he ob- 
tains those commodities which constitute his main 
capital, upon which he does his work, and from 
which he makes his profits. 

Of the great mass of the world's capital, money 
is but a small fraction. Credit is no part at all. 
Money is that portion of capital which is employed 
in reproduction, for the special purpose of effecting 
easily that exchange of values which itself confers 
value, because done by labor. To the greater part 
of mankind, money is only the means by which 
capital is obtained from those who have it. 

Now, were it not for mixed-currency banks, all 
the capital loaned in the form of money would be 
reliable. Mixed currency, for the time being, takes 
the place of actual money, and becomes an instru- 
ment by which capital is transferred. But its nature 
is, as we have seen, to issue in greater volume than 
necessary for the wants of commerce, and, by this, 
to disturb the business of the country, cause an 
unnatural rise of prices, an increase of imports, a 



MIXED-CURRENCY FALLACIES. 229 

decrease of exports, and finally a call for real money, 
which causes the withdrawal of all the extra currency 
at the very moment when, owing to the increased 
indebtedness it has caused, it is more needed than 
at any other period. It will then be discovered 
that this excess was not capital, or actual value, but 
credit, in the guise of capital, which the mixed- 
currency banks had issued, and which they were 
compelled to withdraw when most wanted. 

Fallacy 2d. That mixed currency is cheaper than 
a value currency, more economical, and therefore 
more desirable. 

Specie costs much labor. Paper costs but little 
in comparison : therefore, as it answers the same 
purpose, and is more conveniently handled, it con- 
fers a benefit. This is a popular idea. 

Money, we have said, is an instrument, nothing 
else; w y e do not eat, drink, or wear it. All tools, 
instruments, or appliances should be as cheap as 
possible, provided, always, they are safe and efficient. 

A paper cap is cheaper than one of leather or 
cloth ; but is it as durable and comfortable? If not, 
although in the first instance it costs less, it would 
not be desirable for use. The same principle applies 
to money. 

If what we have already said of a mixed currency 
is true, it is wanting in those qualities which would 
make it cheaper than a value currency, because it 
does not discharge fully or perfectly a single func- 
tion of money. It deranges trade, because it does 
not obey the laws of trade. It increases credit 
enormously, by its expansions, because it is itself 
credit, and impairs it by its contractions. 

20 



230 EXCHANGE. 

But the gain by this substitution of credit for 
value in the currency is insignificant, when com- 
pared with the great interests of trade. The aver- 
age of paper circulation in the United States from 
1850 to 1859 inclusive, ten years, was not more 
than $6.25 per capita. If from this we deduct the 
average specie per capita for the same time held by 
the banks, viz. $2.25, we shall have left $4.00, as 
the amount for each individual of credit circulation. 
On that amount, the saving, if any, is to be made. 
If we compute the interest at six per cent., we have 
twenty-four cents as the annual saving to each indi- 
vidual by the use of credit currency ; a saving worth 
the attention of the statesman, if it could be properly 
and safely made, but paltry in comparison with the 
losses and disturbances incident to a mixed cur- 
rency. 

Some have supposed that a great saving is made 
by the use of paper money instead of coin. But it 
is not necessary to have a mixed currency in order 
to avoid abrasion of the coin. A mercantile cur- 
rency, based wholly on specie, would equally avoid 
loss from this cause, and yet secure all the advan- 
tages of a value currency. 

But, in fact, the abrasion of paper currency is 
far greater than that of gold; that is, it costs 
more to keep out one hundred dollars of currency 
than it does to keep out one hundred dollars in 
coin. Gold and silver circulate themselves; but 
it requires a formidable machinery to circulate 
paper promises, — a machinery far more costly than 
the slow wear of the precious metals. No banker 
would venture to say that a paper currency can be 



MIXED-CURRENCY FALLACIES. 2S1 

maintained for one-twentieth of one per cent, per 
annum.* 

This argument of economy in the use of credit 
money was presented by Dr. Adam Smith ninety 
years ago. Even then the danger was apparent, 
though the system had not been developed to its 
proper character and consequences. Had the writer 
witnessed the great convulsions from 1797 to 1866. 
he would have dismissed, as wholly an idle fancy, 
the scheme of substituting the "Daedalian wings" 
(say, rather, the Icarian wings) of credit for the 
" solid ground" of value. He says : 

"The gold and silver money which circulates in any country- 
may very properly be compared to a highway ; which, while it cir- 
culates, and carries to market all the grass and corn of the country, 
produces itself not a single pile of either. The judicious operations 
of banking, by providing, if I may be allowed so violent a meta- 
phor, a sort of wagon- way through the air, enable the country to 
convert, as it were,, a great part of its highways into good pastures 
and cornfields, and thereby to increase very considerably the an- 
nual produce of its land and labor. The commerce and industry 
of the country, however, it must be acknowledged, though they 
may be somewhat augmented, cannot be altogether so secure, when 
they are thus, as it were, suspended upon the Daedalian wings of 
paper money, as when they travel about upon the solid ground of 
gold and silver. Over and above the accidents to which they are 
exposed from the unskilfulness of the conductors of this paper 
money, they are liable to several others, from which no prudence 
or skill of those conductors can guard them." 

Fallacy M. That the use of mixed currency has 
been the cause of the great prosperity of the United 

States. 

* By a statement of the Controller of the Currency, Sept. 30, 
1869, it appears that the actual working expenses of the national 
banks amount, irrespective of all taxes, to 3-6 per cent, per annum. 



232 EXCHANGE. 

This is, doubtless, a very idle assumption, un- 
worthy of discussion. Yet thousands are influenced 
by it. A coincidence is taken, by force, for a cause. 

The United States have prospered greatly, and at 
the same time there has been a large consumption 
of intoxicating drinks. Surely this does not prove 
that the prosperity of the country was caused by the 
use of liquor. Has the country flourished by reason 
of, or in spite of, such use ? Intoxicating liquors 
stimulate men to greater effort; therefore they in- 
crease production. Mixed currency stimulates ex- 
changes, increases prices, promotes speculations; 
therefore it is favorable to production. 

Such is the reasoning, and it is equally good in 
each case. In both, the misdirection of effort and 
the certain depression of energy are kept out of 
sight. Mixed currency never gave strength or wis- 
dom or skill or economy to any human being, and 
therefore never can have increased the products of 
the country, or enlarged its wealth, in any manner 
whatever. Its unnatural excitements are followed 
by unnatural prostration. Men do not work more, 
but they trade more, speculate more, and squander 
more, during the flood-time of an expansion. More 
is expended for foreign luxuries; there is more ex- 
travagance and waste, which superficial observers 
take to be indications of prosperity. In the time of 
reckoning, trade is as much depressed as it was 
falsely stimulated. 

Fallacy 4th. That there is not gold and silver 
enough in existence to form a currency adequate to 
the rapidly extending operations of commerce; and 
therefore resort must be had to paper substitutes. 



MIXED-CURRENCY FALLACIES. 233 

Twenty years ago, this was regarded as an unan- 
swerable argument in favor of credit currency. The 
recent discoveries of apparently inexhaustible mines, 
and the immense production already realized, have 
to a great extent silenced the senseless clamor once 
raised on this point. Yet the assertion is as true 
now as ever. Only about one-half of the whole 
amount of precious metals in possession of man, 
from the fifteenth to the middle of the nineteenth 
centuries, was required for coin ; the balance re- 
maining in plate and ornaments, mostly in Europe 
and the East. 

The reason of such general error on this point is 
found in the totally inadequate ideas prevailing as to 
the amount of currency needed for trade. People 
are informed that the annual products of the United 
States, for example, are, say four thousand millions; 
and they fancy that four thousand millions of cur- 
rency, or something near that sum, is necessary to 
transfer this immense production : whereas only a 
very small fraction of the amount is required. 

Mr. Col well, in his "Ways and Means of Pay- 
ment," estimates that all the securities issued in the 
United States, including " promissory notes, bank- 
notes, bank credits, and other currency, — in short, 
all which intervene between buyer and seller," — 
amount to one thousand million dollars every three 
months, or four thousand million dollars per year. 
Yet we know that all this may be wiped off with, 
at the most, not more than four hundred million 
dollars of currency, or about one-tenth of the aggre- 
gate indebtedness. 

Now, that the people of the United States could 

20* 



234 EXCHANGE. 

not command sufficient gold to furnish a currency 
equal to their wants is preposterous, since the yearly 
production of California, for the last twelve years, 
has amounted to fifty millions, — in all, say six hun- 
dred millions of gold; a sum about double our re- 
quirements for a sound currency. 

Instead of using this, we find that the amount of 
specie in all the banks in 1848, the time of the dis- 
covery of the gold mines, was forty-six millions, and 
that on the first of January, 1860, the amount was 
eighty-three millions ; showing that, of all the gold 
obtained from California, only thirty-seven millions, 
or about one-sixteenth, had found its way into the 
bank currency of the country. In the mean time, 
the total exports of the nation had increased from 
one hundred and fifty-four to three hundred and 
sixty millions, or more than double. Again, the 
amount of specie per capita in bank for ten years 
prior to the discoveries, say from 1839 to 1848 inclu- 
sive, was $2.07 ; while for the succeeding ten years, 
1849 to 1858 inclusive, it was but $2.10, — showing 
an actual gain of but three cents to each individual, not- 
withstanding the accessions of gold to the amount of 
six hundred millions, or twenty dollars per capita. 

In connection with the fallacy we are now con- 
sidering, it may be proper to speak of the opinion, 
often expressed, that the amount of currency must 
of necessity be enlarged proportionally to the ex- 
tension of trade and the increase of population. 

The experience of Great Britain, the most com- 
mercial nation in the world, entirely contradicts 
this theory, for while its trade and population have 
trebled within the last fifty years, its bank currency, 



MIXED- CURRENCY FALLACIES. 235 

its paper circulation, is no greater than in 1820, and 
yet its money market is as well supplied as ever. 

The phenomenon is easily explained. The vari- 
ous substitutes now provided, and the great improve- 
ment made in the "mechanism of exchange," have 
so vastly increased the rapidity of circulation and 
the effectiveness of currency as to make any increase 
of its volume unnecessary. 

This principle is as applicable to the United States 
as to Great Britain, but not perhaps to an equal ex- 
tent on account of its large territory and more scat- 
tered population. The rapid extension of railroads 
and telegraphs will, however, in a gre«at degree re- 
move even this difference. 

And here it may not be irrelevant to present 
the interesting fact that there is a remarkable uni- 
formity in the amount of paper circulation in pro- 
portion to population in three of the principal com- 
mercial nations. In the United States, in 1860, when 
the currency was redeemable, it was $6.48 per 
capita;* in Great Britain, in 1868, it was $6.54; in 
France, $6.63. 

This correspondence in the amount of paper issues 
per capita in the three most commercial countries 
in Christendom is at least a striking fact, whether it 
results from accidental circumstances, or the natural 
operation of the laws of trade. 

Fallacy 5th. That mixed-currency banks are par- 
ticularly favorable to those who have little capital, 
and must, of necessity, depend upon credit, since 
they increase the facilities for obtaining capital. 

* The irredeemable paper circulation of 1871 is over $18 per capita. 



236 EXCHANGE. 

Whatever impairs credit and increases the risk 
of loaning must be unfavorable to those who most 
need to borrow. Other things being equal, it must 
be easier to get credit in a community where only 
one in twenty fails than where one in five fails; the 
less the risk, the less the hesitation in giving credit. 
Now, does the credit money of a mixed currency 
diminish the risk of general credits ? Far from it. 
Common-sense teaches, and statistics prove, that the 
hazards of credit must be just in proportion to the 
credit money of any country. Instead, therefore, of 
being favorable, it is adverse to all persons wanting 
the use of capital. The hazards of credit in the 
United States are at least four times as great as they 
would be under a value money currency. 

A mixed currency, far from being advantageous 
to persons needing credit, has an entirely opposite 
influence, and is constantly tending to reduce the 
number of those who can obtain sufficient to par- 
ticipate in the profits of business. 

Fallacy 6th. That, without a mixed currency, 
banks could not exist, and all the advantages now 
derived from them would be lost. 

Such is the general impression among the masses 
of the people. Propose to them the expulsion of 
the credit element — that is, to forbid the issue of 
notes beyond the specie in hand, the reply comes 
at once that there would be no object in banking, 
and we should have no banks ; but banking may be 
carried on to any degree, and in the most profitable 
manner, without the issue of a single bank-note. 
This is done in Great Britain, to a wonderful extent, 
by joint-stock and private banks. Only a very small 



MIXED-CURRENCY FALLACIES. 237 

proportion of all the banks in the United Kingdom 
issue their own notes; yet they make dividends so 
large as to astonish us. 

As an illustration of this species of banking, we 
mention the fact that while the Bank of England, 
with a capital of fifteen millions, has deposits, pub- 
lic and private, of but twenty millions on an aver- 
age, the three principal banks of London, with an 
aggregate paid-up capital of only £2,320,000, have 
on deposit £46,158,105; and that while the Bank 
of England declares a dividend of about six or seven 
per cent., these banks make an average profit of 
about thirty per cent., and furnish the commercial 
and manufacturing interest a much larger amount 
of capital than the Bank of England itself. And 
yet they manufacture not a dollar of currency. "We 
present the following statement of their condition : 



Union 

London Joint Stock 







Net profits 


Percentage 


id-up capital. 


Deposits. 


for 6 mos 


per ann. 


£1,000,000 


£15,629,095 


£147,816 


29-56 


720,00Q 


16,472,279 


114,324 


38-11 


600,000 


14,056,731 
£46,158,005 


80,573 


26-86 


£2,320,000 


£342,713 





We see by these facts that the issue of a paper 
circulation is no necessary part of the most extended 
and profitable banking. Foreign bankers pay in- 
terest upon deposits, and are never restricted by 
legal enactments. This is true banking. 

Of all kinds of banks, with their branches, there 
are, in the United Kingdom, about five thousand, a 
small portion only of them being banks of issue. 
Yet, as a general rule, all make large dividends, — 
the largest dividends being by those banks which 
issue no notes whatever. 

20* 



238 EXCHANGE. 

This fact gives sufficient proof, if any were needed, 
that, in order to make large profits, it is not neces- 
sary for a well-established, well-managed bank to 
manufacture currency. 

Banks belong to civilization. A bank is an insti- 
tution intrusted by one class of persons with money 
to loan another class. The existence of such insti- 
tutions implies the existence of capital and confi- 
dence; and these indicate culture and social eleva- 
tion. Banks are labor-saving machines, of vast 
power and utility. They exist of necessity. 

No well-informed man can be opposed to banking 
institutions conducted in a proper manner. It would 
be as reasonable to object to railroads. 

Fallacy 8th. That a mixed currency can be effect- 
ually regulated by law. 

Many of the mischiefs arising from a mixed cur- 
rency are so obvious that all persons desire their 
removal, and naturally resort to legal enactments 
for that purpose. The statute-books of every State 
in the American Union contain laws for the regula- 
tion of mixed-currency banks. Commissioners have 
been appointed in many States, and a Bureau of 
Currency established. Ingenuity has been taxed to 
devise regulations by which these evils may be re- 
moved or modified, — with what success? They 
have never succeeded. 

There is but one defect in a mixed currency; and 
that is, it wants the element of value. There is no 
sufficient remedy, but to supply this, by providing 
that banks shall issue no promises of their own for 
which they have not in possession the actual values 
they promise. But this would be to change the 



MIXED-CURRENCY FALLACIES. 239 

whole system, to make the currency mercantile, and 
to cut off all the profits arising from the issue of 
bank debt as currency. The only complete remedy, 
then, is restoration; that is, a return to the original 
design and purpose of banking. 

Fallacy 8th. That it is for the interest of the pub- 
lic that the banks, in times of panic or stringency, 
should be enabled to u stave off" suspension. 

On the contrary, this can be obviated only to the 
misfortune of the business community. A severe 
pressure for money, as in the United States in 1847, 
1851, and 1854, is experienced, and yet the banks 
do not suspend. But how do they avoid it? By 
throwing the strain upon the mercantile and busi- 
ness community. This they can always do to a 
limited extent, and thus maintain their own credit ; 
but it is done at an enormous amount of embarrass- 
ment and loss to all engaged in business affairs. 

The banks may not only escape damage, but may 
even profit very much by a pressure, if it does not 
come to be a panic ; for it greatly enhances the rate 
of interest. The rate of interest in the Bank of 
England, from 1848 to 1856, did not average three 
and a half per cent. In 1857, when there was a 
severe pressure, the bank was able to obtain ten per 
cent. It had a harvest of profit, and the same in 1866. 

Practically, mixed-currency banks expand as often 
and as much as possible ; and, when the reaction 
comes, hold on to specie payments and a high rate 
of interest, until the bankruptcy of their debtors 
begins to be so alarming as to endanger their own 
securities. They then suspend, allow their debtors 
to pay up in the notes they cannot redeem in specie, 



240 EXCHANGE. 

and thus settle the indebtedness of themselves and 
the public. There is no plan or design to do this; 
but such is the natural result, and, on the whole, a 
highly satisfactory one to the banking interest 

Fallacy 9th. That, whatever the effect upon other 
classes, bank stockholders at least are made richer 
by an expansion of the currency. 

That this is not generally true will appear on 
examination. 

An expansion of the currency raises prices : that 
we take to be indisputable. If so, the stockholder 
may be made richer or poorer by the cause that 
increases his bank dividends. 

For example : suppose he has an income from various 

sources of $5000 

And from bank stock 1000 

Total income $6000 

In consequence of an increase of circulation by the 
banks, he gets an increase of $500, equal to fifty per 
cent, on his bank dividends, making his whole in- 
come $6500. But prices and commodities have ad- 
vanced twenty-five per cent, in consequence of the 
inflation. What he would have bought before for 
$6000, now costs him $7500. The result, then, is, 
that the bank stockholder has gained $500 in his 
dividends, and lost $1500 in his purchases; so that 
he is actually $1000 poorer, reckoning the real 
satisfactions or commodities, etc., which he obtains 
from his income. 

It is only when a man's income is derived almost 
wholly from bank dividends that he can gain, by the 
fact that they have been increased in consequence 
of currency expansion. 



MrXED-CURRENCY FALLACIES. 241 



WHO GAINS BY FICTITIOUS CURRENCY: 

But it may be asked, if stockholders do not gain 
by bank expansions, who does? There is an in- 
crease of dividends: who gets the advantage? 

This inquiry brings us face to face with one of 
the prime mysteries of currency, and, indeed, of 
political economy. " Who gains by fictitious cur- 
rency?" Before answering this, we will ask, What 
is gained by a currency not consisting of actual 
value? We answer, nothing but price. Prices are 
changed by it. Values are not created : they remain 
the same. By the change in the standard or measure 
from a value to a mixed currency, prices no longer 
accurately determine value. Prices are increased. 
Those w 7 ho hold commodities while prices are ad- 
vancing, gain by such an advance. Debtors may 
discharge their obligations with less value. Specu- 
lators may make favorable operations. The value 
of every commodity has been interfered w r ith ; the 
integrity of every contract to pay value has been 
impaired. 

Such is the " consummation" of mixed currency. 
"It is a grand system of insidious swindling." So 
said "Hardcastle" (who was no other than Mr. Page 
of the Bank of England) more than forty years ago ; 
and what that shrewd observer then discovered is 
apparent now to all who enter into a full examination 
of the subject.* 

* Richard Cobden repeated this remark of Mr. Page to the 
author at Manchester, more than twenty years since, with his 
emphatic approval. 

21 



242 EXCHANGE. 



CHAPTER XIII. 

MERCANTILE CURRENCY. 

We have thus far examined three different kinds 
of currency. 1st. Money, consisting of the precious 
metals : this we have found to be admirably adapted 
to the wants of trade, except that, for large ex- 
changes, it is too cumbersome, requiring much 
labor and time in use. 2d. Inconvertible paper, 
or credit currency, which, we have seen, never has 
been, and in the nature of things never can be, kept 
at par with coin, and is therefore highly injurious 
when introduced into commerce. 3d. A mixed 
currency, or partly convertible paper, which, as it 
is constantly varying in quality and quantity, cannot 
be relied on as a mediam of exchange or a standard 
of value. 

"We now come to the consideration of a mercantile, 
or substitute currency. 

It is quite apparent that a currency is needed 
which shall combine all the advantages of the two 
kinds first mentioned, without the disadvantages 
which we have seen to be inseparable from the 
third. We want the reliability of coin and the 
convenience of paper. With these perfectly united, 
there is nothing more to desire. We have no oc- 
casion to increase the currency beyond its natural 
volume, because that would impair the standard 
of value. We wish only to have so much currency, 



MERGANTILE CURRENCY. 243 

and of such a kind, as the laws of trade demand, 
and, if undisturbed, will always secure. 

Is such a currency practicable ? 

In answering this question, we remark that it 
would not be an entire novelty, since experiments of 
this character have been made most successfully 
upon a large scale, and extending over several 
centuries. 

The Bank of Genoa, established in the early part 
of the fourteenth century, received deposits and 
issued bills or notes of circulation extensively ; but 
" these bills and deposits represented coins of full 
weight and value, and were payable on demand in 
such coins. " They formed a currency adapted to 
the wants of that city when the great mart of trade 
for all Europe, and were continued in use more 
than five hundred years. The bank was abolished 
when Genoa was united to the French Empire. 

The Bank of Amsterdam received deposits in 
coin and gave a receipt (recipisse) for the same. 
These receipts formed a circulation for large mone- 
tary transactions. 

The Bank of Hamburg, established in 1619, has 
the same general character, and confers immense 
benefits on the trade of Amsterdam, issuing its ob- 
ligations only to the extent of its specie. 

We have referred to these individual banks, not 
to give a history of their operations, but to show 
that the essential principle of a substitute currency 
has been long recognized, and thoroughly tried in 
practice. 

To keep gold and silver coin in bank, while they 
are performing all their functions outside, with per- 



244 EXCHANGE. 

feet accuracy and vastly augmented force, — this is 
what a mercantile currency seeks to realize. It 
is beyond doubt that this can be more effectual^ 
done in the present, than in any preceding age, since 
confidence and intelligence are more general and 
controlling. 

England affords the best illustration of the neces- 
sity for such a currency at the present day, when 
the commerce of the world is perhaps one hundred 
times greater than when Genoa was its chief mart. 
The monetary condition of England is peculiarly 
appropriate in this connection, because its present 
currency is probably the best in quality of all the 
mixed currencies, and one with which the public 
generally are well acquainted. Yet, notwithstand- 
ing this superiority, we find the currency, on which 
depend the trade and commerce of the British Em- 
pire, in a state of continual fluctuation, and a matter 
of unceasing solicitude: the bank reserve, by which 
its discounts must be governed, varying from ten 
millions in 1846, to one and a half millions in 1847; 
twelve and a half millions in 1849, to four millions 
in 1854 ; one and a half millions in 1857, to thirteen 
and a half millions in 1858; with corresponding 
variations in the rates of interest. 

Why all this fluctuation and anxiety? Why this 
constant watching of the. amount of bullion in bank ? 
Why this nervous solicitude about the reserve? 

There is only one reason ; and that is, that the 
Bank of England has issued from ten to fifteen mil- 
lions sterling of notes, for which it holds no specie! 
That is all the difficulty. It has disturbed the laws 
of value, by issuing that as money which had only 



MERCANTILE CURRENCY. 245 

the promise of value ; and, consequently, has ex- 
pelled the actual value from the country where it 
was needed. 

And what does the Bank of England gain by 
all this? Why, the interest upon the excess of its 
notes over the bullion in bank; that is, if its notes 
are twenty millions, and it holds eight millions of 
specie, then on twelve millions it obtains interest, 
which, at say four per cent., as an average, is equal 
to four hundred and eighty thousand pounds per 
annum. So, then, it is for this paltry consideration 
that the currency of Great Britain is kept in constant 
fluctuation, and the business community in continual 
anxiety. This gain is equivalent to about four pence 
per head for the population of the nation. Yet for 
this the public must, on an average, suffer to the 
amount of many millions per annum. 

The people of the United States, having a much 
larger proportion of the credit element in their cur- 
rency, suffer still more. 

The remedy for all these evils is a very simple 
one, and perfectly feasible whenever government 
sees fit to make the needful enactments. Not 
only so, but, from the nature of the case, there 
need be no violent change. The experiment may 
be made as cautiously as the most conservative can 
desire. 

If the principles we have previously laid down, 
and the practical results which follow, are such as 
we have stated, then no one nation need to hesitate 
in making this experiment for fear that other nations 
may not follow their example; for the community 
which has the soundest currency will, other things 

21* 



246 EXCHANGE. 

equal, have the most profitable industry and the 
most advantageous commerce. 

There need be no legal restriction whatever upon 
the issue of such a currency, and it matters not how 
voluminous it may be ; since it will be composed in 
fact of value money, will obey the laws of value, and, 
of course, will regulate itself. There would then be 
no expansions or contractions, except from the legiti- 
mate operations of trade ; and the currency of the 
nation would be perfectly sound. Notes may be 
safely issued, of any denominations, and to any 
amount; still it would be desirable that no small 
notes should be put out, because it is better that the 
people should have the coin, so far as practicable and 
convenient, in their own possession, rather than that 
it should be needlessly accumulated in banks, where 
it would be more exposed to danger in case of a 
popular outbreak, or a financial coup d'etat 

That legitimate banking may be made sufficiently 
profitable under such a system, we have seen in the 
case of the joint-stock banks of England. All banks, 
like them, should be authorized to receive deposits, 
and allow such an interest upon them as they might 
choose to pay. If there were no issue of promises 
as currency, which in the nature of the case it was 
impossible to make good, there w 7 ould be no danger 
in allowing them to borrow and loan money on any 
terms they pleased. 

There would be no occasion to enact that such a 
currency as we propose should be received in pay- 
ment of dues. It would take care of its own repu- 
tation. It would be good as gold, and easier in use; 
and it therefore would circulate itself. Of such a 



FREE BANKING. 247 

currency it might be said, in the language of Mr. 
Burke, " It is of value in commerce, because in law 
it is of none." 

It would only be necessary to secure a gradual 
substitution of the better circulation in place of 
the old. 

If. in carrying such a measure into practical opera- 
tion, it should appear that there were banks which 
could not make good dividends, such institutions 
would be discontinued of their own choice, as not 
actually required by the w^ants of the business com- 
munity. Their capital would be paid back without 
any essential loss to the stockholders. Those who 
were concerned in their management would of course 
be obliged to seek other employments, more bene- 
ficial to the country, and perhaps equally so to them- 
selves. The amount of disturbance so produced 
would not exceed that occasioned, many times, by 
the invention of a new description of machinery. 

FREE BANKING. 

Much has been said, at different times, of the de- 
sirableness of free banking. Of the propriety and 
rightfulness of allowing any person who chooses to 
carry on banking, as freely as farming or any other 
branch of business, there can be no doubt. But it 
is not, and can never be, expedient or right to au- 
thorize by law the universal manufacture of currency. 
While banking, as at present, means the issuing of 
inconvertible paper, the more it is guarded and re- 
stricted the better. But when such paper is for- 
bidden, and only notes equivalent to so much coin 



248 EXCHANGE. 

are issued, banking may be as free as brokerage. 
There is not the slightest reason why any banker, 
making loans, should engage in the manufacture of 
currency. It no more appertains to his vocation 
than to that of the merchant. On the other hand, 
there is the most manifest impropriety and danger 
to himself and the public in his doing so. His 
business leads him, of necessity, to incur great 
risks; and this being well known, as soon as failures 
become frequent, as they will when there is a great 
pressure for money, the banker will be suspected, 
and his depositors begin to withdraw their funds, at 
the very moment when he is least able to spare 
them. All this is inevitable; and therefore no one 
taking such risks, and exposed to such contingen- 
cies, should be allowed by law to issue his promises 
as money. 

GOLD NOTES. 

Fortunately, while it is thus improper that bank- 
ers or banking institutions should be intrusted with 
the important function of issuing notes, there is not 
the slightest necessity for their doing so. Gov- 
ernment very properly certifies to the weight and 
fineness of the national coin ; and it is equally incum- 
bent upon the government to certify to the sound- 
ness of the "paper circulation, which convenience 
requires instead of the coin itself. It should receive 
the gold of the people, and give its certificates there- 
for; and those certificates (of all the denominations 
required) would form a circulating medium, per- 
fectly reliable, unfluctuating, and well adapted to 
all the purposes of trade. 



GOLD NOTES. 249 

To do this, government need assume no new func- 
tion ; for it already issues this very kind of certifi- 
cates for deposits of specie. They are called " gold 
notes," and circulate as such. When the specie 
standard is restored, all the notes in circulation will 
be gold notes, government being the trustee for hold- 
ing the coin. This would not give any new power 
to the government, or confer any additional political 
influence. Being custodian merely, with no patron- 
age to bestow, no loans to make, no accommodations 
to grant, there could be no occasion to fear that the 
currency of the country would be swayed by parti- 
san politics. 

And this important change may be effected with- 
out any convulsion in the money market, or any 
interruption of the trade and industry of the nation, 
by the enactment of a law requiring a gradual with- 
drawal of the existing circulation. And the con- 
traction required may be made an entirely voluntary 
one on the part of the people so far as the treasury 
notes (greenbacks) are concerned, by providing for 
the monthly issue of compound interest notes in 
their stead, convertible, after a given time, into 
treasury bonds, at the option of the holder. 

The national banks, on their part, might be re- 
quired to take in their circulation at a certain rate 
per annum, and allowed to receive 2 JT0 ra ^ a their 
bonds now held as security by the government, thus 
supplying themselves with reliable capital with 
which to accommodate the business public. This 
being accomplished, ail restrictions as to paying in- 
terest upon deposits, all requirement to hold specie 
for the redemption of notes, and all taxation imposed 



250 



EXCHANGE. 



for their franchise, or privilege of issuing paper 
money, might be removed, and the banks have the 
whole field of legitimate and profitable operations at 
their entire command. The} 7 would suffer no detri- 
ment, while the trade and industry of the nation 
would gain immensely. 

TABLE VII. 

Characteristics of the Different Currencies. 



KIND. 


COMPOSI- 
TION. 


CIRCULA- 
TION. 

Universal 


STABILITY. 


CONVE- 
NIENCY 
IN USE. 


CONVERTI- 
BILITY. 


AS A STAND- 
ARD OF 
VALUE. 


Specie 


Precious 
metals 


Perfectly 
reliable 


Cumber- 
some in 

large 
amounts 


Needs no 
conversion 


Correct and 
invariable 


Credit 


Paperbased 
on credit 


Local and 
arbitrary 


Liable to 
depreciation 


Conve- 
nient 


Inconverti- 
ble 


False 


Mixed 


Paperbased 

on coin 
and credit 


Local and 
conven- 
tional 


Constantly 
fluctuating 


Conve- 
nient 


Only par- 
tially con- 
vertible 


Defective 
and variable 


Mercan- 
tile 


Gold notes 
based whol- 
ly on coin 


Local and 
conven- 
tional 


Perfectly 
reliable 


Conve- 
nient 


Fully con- 
vertible 


Correct and 
invariable 



CHAPTER XIV. 



THE NATIONAL CURRENCY OF THE UNITED STATES. 

Having given an extended analysis of mixed cur- 
rency as it has heretofore existed in the United 
States, it seems proper that we should notice the 
important changes that have taken place in that 
currency. 

In the month of February, 1863, Congress enacted 
a law establishing a national and uniform system to 



NATIONAL CURRENCY OF U. S. 251 

supersede the State-bank system. We propose to 
inquire in 'what respect it differs from, and in what 
respect it is like, the latter. 

DIFFERENCES. 

It differs from the old system, in that, — 

(1) Being created by national instead of State 
authority, it is entirely within the control of Con- 
gress, which, according to the last section of the 
National Bank Act, may at any time "alter, amend, 
or repeal it." 

(2) It differs, in that all the notes issued are guaran- 
teed as to their ultimate redemption by the government 
of the United States. This provision we presume 
to be without any precedent ; for the government 
is not simply custodian, holding security for these 
notes, as formerly in ISTew York and some other 
States, on the safety-fund principle, where stocks 
were deposited to secure the circulation, but it abso- 
lutely guarantees the final payment of all these 
notes in full. 

Every banking association, on its organization, 
must deliver to the Treasurer of the United States 
the bonds of the United States bearing interest, and 
is then entitled to receive from the Controller of 
the Currency circulating notes of different denomi- 
nations, in blank, equal in amount to ninety per 
cent, of the current market value of the bonds so 
transferred, but not exceeding the par value of such 
bonds. In case the notes issued by the banks are 
not paid by them according to promise, the Con- 
troller may sell the bonds left as security, and 



252 EXCHANGE. 

redeem the notes, making up to the holders of the 
same any deficiency there may be in the securities. 
This, it will be seen, does not secure the immediate 
convertibility, but the ultimate redemption, of the 
circulation. 

(3) It differs, again, in that these notes are legal 
tender in payment of "taxes, excises, public lands, 
and all other dues to the United States, except for 
duties," and also are legal tender by the United 
States in payment of all salaries and other demands 
owing by the United States, except interest upon 
the public debt; but they are not a legal tender as 
between other parties. 

(4) Unlike the State-bank notes, those of the 
national banks, owing to the provision just men- 
tioned, have a nearly uniform value in all parts of the 
United States, and are therefore generally acceptable. 

(5) They differ also in this, that the national 
banks are compelled by law to keep on hand a cer- 
tain proportion of "lawful money" to their circula- 
tion and deposits. In specified cities, this propor- 
tion is fixed at twenty-five per cent.; in all other 
places, at fifteen. 

Under the State systems, there was no legal obli- 
gation on the banks to keep any specie whatever, 
except in a few cases, as in Louisiana and (recently) 
in Massachusetts, and one or two other States. But 
this provision in regard to the national banks is 
practically, to a great extent, only a nominal matter, 
because the law provides that " bank balances (due 
from one bank to another) shall be deemed to be 
lawful money;" and therefore, as these balances 
may be created fictitiously for the very purpose, the 



NATIONAL CURRENCY OF U. S. 253 

clause obliging the banks to keep a certain propor- 
tion of "lawful money" with which to redeem their 
notes is nearly a nullity. However real these bank 
balances may be, they are not specie, but, as we 
have before show T n, constitute the most perilous 
and explosive element of a mixed currency. This 
is one of the great defects of the law, and, until it 
is removed by the repeal of this provision, would 
alone make the system a dangerous and unreliable 
one. The object of requiring any specie, or lawful 
money, is, that the currency may be made more 
reliable; but, so far from giving strength, every 
banker knows that these balances are a cause of 
weakness in time of panic. 

(6) Another important difference between the 
past and present currency is that in the former 
the security of both circulation and deposits was 
the same, while with the latter the circulation is 
guaranteed by the national government, but the 
deposits have no security except the stability of the 
bank in which they are made. 

Lastly, the national differ from the old State 
banks in this, that the latter had almost their en- 
tire capital to loan to the business community, 
while the new banks have little or none at all, 
having loaned their capital at the outset to the gov- 
ernment, by the purchase of its bonds. 

RESEMBLANCES. 

The new 7 currency resembles that of the old State 
banks, in that it will be a mixed currency, with all its 
characteristics, when specie payments are restored. 

22 



254 EXCHANGE. 

(a) It will expand and contract from the same 
causes, and, so far as can be seen, with the same 
violence and to an equal extent, and consequently 
will be as fluctuating as the currency it is designed 
to supersede, except in so far as a larger proportion 
of specie shall be held for its redemption. 

(b) It will be an equally delusive and false standard 
of value, having in itself but a small proportion of 
value. 

(<?) It will raise prices and cause speculation when 
in the process of expansion, and depress prices and 
produce bankruptcies when contracting. 

(d) It will create an unnatural extension of credits 
at one time, and a corresponding contraction at 
another, producing great vibrations in the rate of 
interest. 

(e) It will derange the natural current of trade 
from time to time, causing an increase of imports 
and a decrease of exports, and thus forcing an ex- 
port of specie to meet an unnatural balance. 

(/) It will counteract the influence of both natural 
and artificial protection, and retard the normal 
growth of home manufactures. 

Lastly, it will create panics, and cause frequent 
suspensions of all the banks in the country. 

It may be thought that the fact that the govern- 
ment guarantees the national-bank notes will pre- 
vent a run upon the banks; but that will be found 
an entire mistake/ Panics are created because 
money is wanted to pay notes and discharge im- 
mediate obligations, not because the people fear 
that the banks are insolvent. 



NATIONAL CURRENCY OF U. S. 255 



CHARACTER AND CONDITION OF THE NATIONAL BANK 
CURRENCY. 

The original, or net capital, of all the national 
banks, on the 8th of October, 1870, as appears by 
the last annual Eeport of the Controller, was, 

in round numbers . $430,000,000 

Surplus fund " . 94,000,000 

Undivided profits 38,000,000 

Gross capital $562,000,000 

The loans and discounts, the United States bonds, 
and other stocks and mortgages heid by the 
banks, amounted to .$1,118,000,000 

Three per cents held by them 45,000,000 

Total amount drawing interest .... $1,163,000,000 

or more than twice the amount of their gross 
capital. In other words, the banks had loaned 
their credit in the shape of circulating notes and 
what they owe on account (what are called "deposits"), 
to the amount of $601,000,000. 

From this statement we perceive why it is that 
these banks are euabled to make larger dividends, 
after paying all expenses and taxes, than were ever 
made under the State-bank system; and why they 
can, besides, accumulate so much " surplus fund," 
and have so great an amount of " undivided profits" 
(the two together amounting to over $132,000,000) 
still remaining. 

The position of the banks in relation to the im- 
mediate demands that may be made upon them, 
and their immediate resources to meet those de- 
mands, is seen in the following statement: 



256 EXCHANGE. 

The banks owed for circulation and deposits . . . $809,000,000 
They had of immediate means of payment : 

Specie $18,000,000 

Legal tenders 79,000,000 

— 97,000,000 

Excess $712,000,000 

that is, they had on hand about twelve cents on the 
dollar of what they owed on demand ; and of this 
last, but $18,000,000, or about two per cent., w 7 as 
specie, or that which actually pays a debt 

From these facts we see what a stupendous fabric 
of credit is built upon a small sum of actual cash. 
But the character and condition of the national 
currency can be best determined by examining the 
position the banks of New York occupy in relation 
to the general system ; that city being the great 
monetary centre. As the ability of the New York 
banks to stand any pressure that may be put upon 
them, so is the strength and security of the entire 
system. Here is the laboring point. 

By referring to the report before mentioned we 
find the banks of New York City had — 

Loans and discounts $168,000,000 

United States bonds 48,000,000 

Other stocks and mortgages 5,000,000 

Total $221,000,000 

They also have of three per cent, certificates . . . 28,000,000 

Total on which they draw interest . . . $249,000,000 

Their net capital is $73,000,000 

Their surplus fund 19,000,000 

Their undivided profits 10,000,000 

Total gross capital 102,000,000 

Excess loaned over whole capital ..-.-... $147,000,000 



NATIONAL CURRENCY OF U. S. 257 

Thus we find that these banks derive an income 
from an amount nearly twice and a half as large as 
the capita] they actually possess. This is done, as 
in the case of the national banks generally, by a 
loan of their credit. When a bank has loaned all 
its capital, it can have nothing else to loan except 
its credit. 

The actual condition of the city banks, at the 
time mentioned, was as follows: 

They owed on demand : 

For circulation (notes payable) $33,000,000 

For deposits (accounts payable) 167,000,000 

Total $200,000,000 

They had of immediate resources : 

Specie 13,000,000 

Legal tenders 18,000,000 

$31,000,000 

equivalent to about fifteen cents on the dollar, of 
which six and a half cents was in specie, though of 
the last it is uncertain how much actually belonged 
to the banks, as it is said that the Canadian banks 
had loaned largely to the New York banks, paya- 
ble in specie. 

In addition to the above, these city banks owe to 

other national banks $56,000,000 

To State banks and branches 16,000,000 

$72,000,000 
They have due from national banks . $13,000,000 
From State banks and branches . . 2,000,000 

15,000,000 

Leaving a balance of $57,000,000 

due to the country banks which deposited their 

22* 



258 EXCHANGE. 

funds with them for the redemption of their own 
notes. 

This item of 57 millions, in case of a run upon the 
banks for whatever cause, is, as we have insisted, the 
most perilous because the most explosive element in 
the entire system. As certain as the country banks 
are called upon for payment, so certainly they must- 
draw upon the New York banks. But, in that case, 
what have the latter wherewith to respond to these 
calls ? Their whole reserve is, as we have seen, but 
31 millions to cover their other immediate engage- 
ments to the extent of 200 millions; how can they 
then be prepared for any considerable demand from 
these creditor banks ? How they did respond in 
1857 by immediate suspension we have already 
shown. 

But it maybe said that these banks held 28 millions 
of three per cent, certificates that might be readily 
converted into lawful tenders, and thus made avail- 
able to meet this immediate obligation. That this 
is not exactly so, we see by looking at page 24 of the 
Report, where we find the New York banks actually 
held but 17 millions of these three per cents. This 
deficiency is accounted for by the fact that the 
Secretary of the Treasury kindly permitted a part 
of these three per cents to be "stamped" and used 
as clearing house certificates. They were thus, to 
that extent, virtually converted into currency, and 
used instead of greenbacks in paying bank balances. 
Besides, the New York banks at this time owed the 
country banks a balance of 57 millions. 






NATIONAL CURRENCY OF U. S. 259 



CLEARING HOUSE CERTIFICATES. 

This brings us to the consideration of a very im- 
portant part of the machinery of banking; viz., Clear- 
ing House Certificates. These are created each day 
by the checks drawn upon the different banks, which 
are all brought to the clearing house to be adjusted. 
In the last return these " exchanges" amounted, the 
8th of October, 1870, in New York City, to the 
enormous sum of 62 millions. 

Were all these checks drawn in good faith upon 
funds actually in bank it would make no difference 
how large the amount; but if drawn without funds, 
as it is believed a large part are, and certified by 
cashiers to be "good," when it is well known they 
are not, it does make a great and dangerous differ- 
ence. A law of Congress exists against certifying 
checks when there are no funds as a basis for them; 
but "operators" care little for laws which they have 
ingenuity enough to evade. 

Such are the most important facts in regard to 
the banks of the City of New York as a whole, upon 
which, as we have said, the entire superstructure of 
the National Banking System rests. But there are 
still others worthy of consideration if we could have 
a complete view of the case. Individual banks loan 
far more than the general average. For example, 
one of the city banks, with a gross capital of $590,000, 
has loaned to individuals and the government, includ- 
ing $300,000 in three per cent, certificates, $2,241,000, 
or nearly four dollars to one of its capital. Its legal 
tenders were $144,000, its specie $13,000. 

Another bank presents the following : 



260 EXCHANGE. 

Loans $8,424,909 

United States Bonds 536,000 

Other stocks and mortgages 333,000 

Three per cent, certificates 1,850,000 

Total drawing interest $11,143,909 

Its capital is $1,500,000 

Surplus fund 298,633 

Undivided profits 655,636 

2,454,269 

Excess $8,689,640 

This last sum represents the extent to which this 
bank loans its credit, and accounts for its heavy 
surplus and large amount of undivided profits, in 
addition to the large semi-annual dividends it has 
made. Its indebtedness to individual depositors was 
$4,024,843, and to the country banks $5,678,673. 

We add the following statement, showing very 
nearly the condition of the entire currency of the 
country in 1860 and 1870 : 

In 1860, circulation and deposits $460,000,000 

Fractional circulation 30,000,000 

Total currency . . $490,000,000 

Bank circulation and deposits in 1870 809,000,000 

Greenbacks, treasury notes ... .... 356,000,000 

Gold notes 40,000,000 

Three per cent, certificates, about . 40,000,000 

Fractional, about 40,000,000 

Total bank and government currency .... $1,285,000,000 

If a population of 31,500,000 in 1860 required 
490 millions of currency, how much would a popu- 
lation of 38,500,000 require in 1870? Answer, 
$598,888,888, say 600 millions, instead of which we 
have 1285 millions, or a redundancy of 685 millions. 



NATIONAL CURRENCY OF U. S. 261 

We say redundancy, because no good reason can be 
given why more currency in proportion to popula- 
tion should be required now than ten years ago ; 
indeed, the increase of rapid intercommunication, 
and the improved methods of using and transmitting 
funds, make a less amount now as effective as a larger 
one could have been before the late war. 

It has been said that "this excess will soon be 
absorbed by the growing wants of trade/' That the 
country might "grow to it" ultimately, if it con- 
tinued to advance in wealth, is certain ; but the 
period is far distant. In 1835, the whole circulation 
was 103 millions; in 1860, it was, as we have seen, 
207 millions, having increased at the rate of 4*36 
per cent, per annum during the intervening 25 
years. Should the demand continue to increase 
in the same ratio, it would require the lapse of 40 
years from 1860, or until the year 1900, to bring 
the wants of the country up to the present supply. 
In the mean time, the currency would remain not 
only an inconvertible one, but, for all practical pur- 
poses, irredeemable, even in greenbacks; because, 
although strong efforts have been made by the 
Controller to secure a system of redemption, op- 
posing influences have hitherto been sufficiently 
powerful to prevent it; the banks issue their notes 
without any fear of being called upon to redeem 
them ; and, besides, additional issues have already 
been authorized to the amount of 54 millions. 

Facts of this kind to almost any extent might be 
presented ; but the foregoing are believed to be 
sufficient to show the character of the national 
bank currency, and what may be expected from it. 



262 EXCHANGE. 

The only complacency we can feel in the present 
system, as compared with the past, is, that it is 
more susceptible of reform, and of being restricted, 
by national legislation, to legitimate banking. 



CHAPTER XV. 

EVIDENCES OF DEBT. 

We have already spoken of two different modes 
of effecting exchanges; viz., (1) barter, and (2) a 
universal equivalent, money or currency. "We now 
notice a third mode of doing this; viz., by evi- 
dences OF DEBT. 

These are mainly of three kinds : 

I. Book accounts. A sells B one hundred barrels 
of flour, and charges him five hundred dollars in 
account, to be paid, by verbal agreement, in four 
months. 

This is a very extensive mode of effecting ex- 
changes. Yery large transactions are made in this 
manner. Retail trade, especially, is almost wholly 
carried on in this way. These accounts are often, 
particularly in country trade, paid in commodities. 
The farmer makes his purchases of the merchant, 
from time to time, and sells him his produ9e when 
ready for market. Both are entered in account, 
and a final balance is ascertained, and adjusted by 
money or other equivalent. 

(a) Book accounts are, in some respects, an un- 






EVIDENCES OF DEBT. 263 

desirable form of transfer, because they are ex parte, 
and may be disputed. The purchaser may deny 
that he bought such a quantity, or at such a price. 
An account, if disputed, is always a matter to be 
proved; and, although the oath of the seller is 
generally deemed conclusive evidence, there is 
always opportunity for litigation. 

(6) Another objection to book accounts is, that 
they are not negotiable. C cannot readily purchase 
B's account against A; but, if B had A's note, that 
could be easily negotiated or transferred. Accounts 
cannot, of course, be made available at banks, like 
notes, or left as security for money borrowed. The 
capital is locked up for the time being. 

II. The next mode of credit is that of notes. 
These are made payable for a given sum, and at a 
given date. They are generally payable to the 
order of the payee, and, when negotiated, are in- 
dorsed by the latter. This transfers the ownership 
to a third person; but the indorser is held to pay 
the note, if the promisor fails to do so. 

III. A third form is by bills of exchange, or 
orders from A to B to pay C a given sum at a fixed 
time. These differ from notes, in that they involve 
three parties, — the drawer, the acceptor, and the 
payee. They have a form usually somewhat like 
the following : 

$1000. New York, Jan. 1, 1866. 

Four months from date, pay to the order of J. Brentwood & Co. 
one thousand dollars, value received, and place to account. 

(Signed) Henderson, Williams & Co. 

To Messrs. Bennet Brothers & Co., Boston. 



264 EXCHANGE. 

Here are three parties, — the drawer, the acceptor, 
and the indorser or payee. 

This is first called a draft When presented to 
the person on whom it is drawn, and by him ac- 
cepted (which is done by writing the word " ac- 
cepted " on the face, and signing the name), it is an 
acceptance. When indorsed by the person in whose 
favor it is drawn, it becomes a complete bill of ex- 
change. 

This species of transaction will arise mainly be- 
tween persons residing in different places, and in 
this manner: A, in Boston, orders of B, in New 
Orleans, one thousand bales of cotton, which B 
sends, with a bill of the same, and then draws on A 
for the amount. 

The commerce of the world is carried on prin- 
cipally by this agency. The transportation of money 
is thus dispensed with, except to settle the final 
balance of trade. 

BILLS OF EXCHANGE. 

Bills of exchange may be divided into two kinds, 
— domestic and foreign. 

Domestic bills are those drawn and payable within 
the same country, as between different cities and 
different States. The manner in which these bills 
save the use of money, in domestic trade, is illus- 
trated as follows : 

A, in Boston, sells to B, in New York, goods to 
amount of one thousand dollars. 

C, in New York, sells to D, in Boston, leather to 
amount of one thousand dollars. 






EVIDENCES OF DEBT. 265 

Instead of sending the money, B, in New York, 
goes to C, in New York, and gets his draft on D, 
and remits it to A, in Boston, who receives the 
money of D ; and the transactions are all closed 
without a dollar in money having been transferred 
from one city to another. 

This is the course of all direct trade between any 
two places. Not, it must be understood, that, in the 
case supposed, B actually goes to C; but the mer- 
chants in Boston are owing millions to merchants in 
New York, while persons of the latter place are 
owing, it may be, an equal amount in Boston. 

Bills are drawn on Boston for all due to New 
York, and on New York for all due to Boston. 
These bills are, when completed, if not before, gen- 
erally passed into the banks, which pay out the money 
for them, deducting the interest (and exchange, if 
there is any). Then, if a merchant in either city 
wishes to remit, he goes directly to the bank, which 
will draw on some bank in New York or Boston, as 
the case may be, for such sum as he may want. The 
banks negotiate or collect the whole, and sell or dis- 
pose of their own checks or drafts for the amount. 

This is a labor-saving arrangement of immense 
importance, greatly reducing the otherwise inevi- 
table demand for a large amount of money to be 
kept in transitu between the different marts of trade. 

INDIRECT EXCHANGE. 

But all exchange is not direct between two places. 

A, for example, in St. Louis, ships one hundred 

thousand dollars' worth of lead to New York. He 

23 



266 EXCHANGE. 

wishes to pay sundry persons in Boston, Providence, 
Lowell, and Lynn. He draws on his correspondent 
in New York for all these, in favor of the persons to 
whom he is indebted ; and the drafts are negotiated 
by the receivers, through bank in the several cities, 
and finally all sent to New x York for collection. All 
domestic trade thus becomes a great web of ex- 
changes, which adjust themselves by means of these 
bills; and thus, to their entire aggregate amount, 
obviate the necessity of transmitting money. 



FOREIGN EXCHANGE. 

This consists of orders ; that is, bills of exchange, 
drawn upon each other by the merchants and bankers 
of different countries. They differ little in form 
from domestic bills, but are usually drawn in sets of 
three; called, respectively, the first, second, and 
third of exchange, in something like the following 
form : 

£1000. Boston, June 28, 1859. 

At sixty days' sight of this first of exchange (second and third 
unpaid), pay to the order of A. Brown & Co. one thousand pounds 
sterling, value received, which place to account. 

Brydone Brothers & Co. 
George Peabody & Co., 
London. 

The party to whom the bill is payable takes these, 
and forwards the first to London, where it is accepted 
and paid. But an accident might occur by which 
the bill would be destroyed or lost while on its way 
to London ; and, in that case, the owner would for- 



EVIDENCES OF DEBT. 267 

ward the second, which would be paid. The third 
bill is also held, for the same precautionary reasons. 

These bills arise in a great variety of ways. 
Persons wishing to purchase merchandise or other 
articles abroad go directly to bankers in New York, 
Boston, etc., and buy a bill of the required amount. 
So with persons wishing to travel abroad. But the 
principal amount, of course, is drawn in payment 
for importations of foreign merchandise. In general, 
the trade between England and this country is car- 
ried on by bills drawn on this side the water, upon 
cotton and other produce shipped abroad, mostly 
to Liverpool. 

To illustrate the ramifications of this kind of in- 
tercourse, we will suppose that A, in Boston, buys 
merchandise of B, in Liverpool; 0, in Boston, sells 
goods to D, in New Orleans; E, in Boston, buys 
cotton of F, in New Orleans, and ships the same to 
G, in Liverpool. Each transaction, we will suppose, 
amounts to five thousand dollars. 

How are all these settled without the transfer of 
money ? A gets the draft of E upon G, and sends 
it to B, in Liverpool ; E gets the draft of C upon D, 
and remits it to F, at New Orleans, who receives the 
amount of D.* 

Thus four debts of five thousand dollars, in all 
twenty thousand dollars, have been paid, and no 
money has been transferred from one place to 
another. A great saving of time, expense, and 
interest is thus effected. 



* These transactions go through banking houses, as in the case 
of domestic exchanges. 



268 EXCHANGE. 

In 1857, the United States imported $362,000,000 

And exported cotton, breadstuff's, etc., $291,000,000; 
gold, $69,000,000 360,000,000 

Leaving a nominal balance of $2,000,000 

Another thing in regard to exchange may be 
noticed; viz., England received that year of (the 
United States) fifty-four millions more than we 
bought of her. The same year we bought of 

Brazil more than sold to her . . $16,000,000 

China 4,000,000 

Spain, Cuba, etc 29,000,000 

France 8,000,000 

$57,000,000 

These balances were mainly adjusted by drafts on 
England, by which our balances against England 
were discharged. 



THE NATURAL RATE OF EXCHANGE. 

By the rate of exchange is meant merely the price 
or cost of transporting money from one point to 
another; say, from Cincinnati to New York. If the 
time, freight, insurance, and other charges are equal 
to one per cent., then that is the natural rate of ex- 
change. We have shown that only a small amount 
of coin, in the course of trade, is likely to be trans- 
ported from one place to another. As there is a 
mutual trade, as Cincinnati buys of New York and 
New York of Cincinnati, it is only necessary to buy 
bills of exchange between these places. But on 
these bills there will be a premium or discount, as 



EVIDENCES OF DEBT. 269 

the case may be. If New York has purchased more 
largely in the mutual trade, there will be an excess 
of demand in that city for bills on Cincinnati. Re- 
verse the supposition, and there will be an excess 
of demand in Cincinnati for bills on New York. 
The consequence, in either case, will be a rate of 
exchange equal to the transportation of specie, as 
above indicated. The rate of exchange will fluctuate 
from time to time (other things equal) precisely ac- 
cording to the transactions between the two cities. 
It becomes, then, in point of fact, the barometer of 
trade ; indicating, with perfect accuracy, the state 
of trade between any two points, at home or abroad. 
With a sound currency, the rate of exchange may 
ever be relied upon, and is always watched with 
great interest by every intelligent merchant and 
banker. 

If this be so, we see that perfect freedom of ex- 
change is of great importance, and that no extraneous 
influence should be brought to disturb this barom- 
eter, to which all ought to look with entire con- 
fidence. 

THE RATE OF BRITISH EXCHANGE. 

It is well known that the ordinary rate of ex- 
change between this country and England is from 
nine to ten and a half per cent, against the United 
States; but the explanation of this is not generally 
understood. The transportation of specie between 
the two countries, all charges and time included, 
costs only about one and one-quarter per cent. 
Why, then, this difference? 

23* 



270 EXCHANGE. 

When the American government was first formed, 
the old Spanish milled dollar was in use; and $4.44 
were equal to the British gold coin called a sovereign, 
or pound sterling. And Congress enacted that $4.44 
should be the rate at which the pound sterling must 
be computed at our custom-houses. 

Since that time, important changes have taken 
place; the relative value of gold and silver have 
changed. The latter has advanced, or the former de- 
clined. The American dollar, too, has been altered, 
so that it has a less quantity of silver; and our gold 
coins, also, proportionately. It therefore now takes 
$4.86.6, in American coin, to be equal to a pound 
sterling. Thus the — 

Actual value of the pound sterling is $4.86.6 

Exchange valuation 4.44.4 

Difference $0.42.2 

which, it will be seen, is equal to very nearly nine 
and one-half per cent.; so that, when exchange is 
quoted at nine and one-half per cent., it is really at 
par. 

Now, if this is the actual par value of the two cur- 
rencies, it will happen that, whenever the market 
rate of exchange rises so far above nine and one- 
half per cent, as to be sufficient to pay the expenses 
of sending specie and a trifle more, then the specie 
will go forward. 

What these expenses are will be seen by a state- 
ment of an actual transaction between Boston and 
London, February, 1865. 



EVIDENCES OF DEBT. 271 

Gold purchased $50,000 

Insurance, one-half per cent $250.00 

Freight to Liverpool, three-eighths per cent. . 187.50 

Carriage, Liverpool to London 5.00 

Selling, commission, one-eighth per cent . . 62.50 
Fourteen days' time lost, at six per cent. . . . 83.33 

$588.33 

These expenses are equal to about one and one- 
sixth per cent. 

There is always some risk that the specie sent 
forward may not hold out full weight; that is, that, 
owing to abrasion in use, it might fall short a trifle : 
so that, probably, instead of one and one-sixth, the 
exporter of gold might as well have bought a bill 
of exchange, at one and one-quarter per cent, above 
9J, the actual par. 

Then, if the difference in the par value of the two curren- 
cies is equal to 9-5 

And the expenses of remitting gold equal to 1-25 

Eeal par value of exchange 10-75 

it will follow that gold will not ordinarily be exported 
until the market rate of exchange is about ten and 
one-half per cent. 

ARE BILLS OF EXCHANGE CURRENCY? 

It has often been maintained that bills of ex- 
change are currency as truly as bank-notes. Let us 
inquire. 

1st. The definition we gave of currency, viz., that 
instrumentality by which a general exchange of 
values is effected and payments are made, does not 



272 EXCHANGE. 

embrace bills of exchange, which have themselves 
to be discharged with currency. The fact that, 
when found in equal amount on opposite sides, they 
may be used to cancel each other, makes them no 
more currency than is the credit side of a book 
account, which balances the debit. Bills of exchange 
dispense with the necessity of transporting currency 
in a certain number of commercial transactions: 
they are not, therefore, themselves currency. They 
allow debts between different States or nations to 
be discharged in the local currencies ; bat each bill 
is itself discharged in full by the use of currency, 
no less. 

2d. Currency, if it be equal to money, can be at 
once exchanged for specie at the place where issued; 
but cash cannot be demanded for bills of exchange, 
as they are generally on time. They are, in fact, 
bought and sold for money, like the merchandise 
on which they are drawn. 

3d. If a bill of exchange be dishonored, that is, 
not paid according to promise, the currency of the 
country is not thereby diminished. Is it so with 
currency? On the contrary, if a bank fkils, so much 
currency as it has in circulation is at once abstracted 
from the community. 

But how is it with bills of exchange and notes? 

Suppose the indebtedness of a country were one 
hundred millions, and its currency ten millions: 
then, if fifty millions of the bills of exchange and 
notes of hand fail to be paid, there still remain the 
ten millions of currency with which to pay the 
balance; and currency is twice as plentiful, rela- 
tively to indebtedness, as before. 



EVIDENCES OF DEBT. 273 

Suppose, on the other hand, that one-half the cur- 
rency fails, while the whole amount of bills of ex- 
change, etc. remain to be paid; or, to go further, 
suppose the entire currency to fail : then how can 
the private bills be paid at all? 

So far from being currency, then, they are the 
very opposite in their nature, and can be discharged 
only by the use of currency. 



BOOK IV. 

DISTBIBTJTIOIJr. 



CHAPTER L 

DIVISIONS OF THE SUBJECT. 

Distribution is the apportionment of wealth 
among the parties producing it. Like exchange 
it arises from the division of labor. 

We have seen by whom all wealth is produced, 
have examined the instrumentalities employed in its 
transfer from one individual or people to another, 
and have contemplated the nature and extent of 
that great system of trade by which the products 
of the world are made to minister to its wants. 

We have observed that capital and labor are 
united in production, — one as the labor of the past, 
the other as the labor, of the present; and that the 
joint product is divided between them. We now 
come to consider the laws by which an equal and 
just distribution of the wealth produced shall be 
secured among the parties. In doing this, we are 
obliged to discriminate between the different kinds 
of labor employed and the various forms in which 
capital enters into production. 

Labor, in the distribution of wealth, falls into 
three general classes : 
(2U) 



DIVISIONS OF THE SUBJECT. 275 

1st. Physical or muscular effort. 

2d. Mental effort or enterprise, applied to the 
union of capital and labor. 

3d. Subsidiary labor, or professional services, 
auxiliary to direct efforts in production. 

The reward of the first is called wages ; that of 
the second, profits; of the third, salaries, fees, etc., 
— but another name for wages. 

In these three general forms, labor receives its 
reward. It is, however, to be observed that, though 
the distinction is clear between the wages of direct 
labor and the compensation paid for subsidiary labor, 
— like professional services, — yet the laws which 
govern are so similar as to render separate examina- 
tion unnecessary. Both are controlled by the pro- 
portion of supply and demand. 

Capital is loaned in two general forms: 

1st. When invested with a permanent character 
and having a fixed place,- — as houses, fields, etc., — 
its compensation is called "rent." 

2d. When in a shape, however solid and tangible, 
which is not intended to be retained, but may be 
altered to suit the business, or removed for con- 
venience of location, — i.e. where not the identical 
product, but only an equivalent, is to be returned, — 
its compensation is called "interest.'' 

Production, thus far, has been charged with wages 
(and under this term we include all the rewards of 
auxiliary labor, salaries, fees, etc.), profits, interest, 
and rent. Between these parties the product is to 
be divided. This division is made by natural laws, 
which, if not interfered with by legal enactments or 
social customs, will secure to each its rightful share. 



■■ 



276 DIgTKIBUTION. 

But, while this is true, another party enters the 
field, and makes a peremptory claim to a portion 
of the wealth which the joint efforts of these has 
produced. That party is government, demanding a 
revenue for its maintenance, to which all must and 
should contribute. Tiiis is done in the general form 
of taxation. 

Distribution is now complete, — wages, profits, 
interest, rent, and taxation. These we shall ex- 
amine in their order. 



CHAPTER II. 



WAGES. 



Since labor and capital join together in produc- 
tion, each may rightfully claim, and in the nature 
of things must receive, a share of whatever is pro- 
duced. 

The share which labor receives is called "wages;" 
and by this general term is meant that compensation 
which the employer pays to the employed for his 
personal services. The law of value is the law of 
wages. Wages confer value, and are measured by 
it. xhey depend essentially on the conditions of 
cost, supply, and demand. Competition comes in to 
influence their rate, as it does the price of all 
commodities? 

Wages vary greatly in different countries, and in 
different parts of the same country; they vary, too, 



i 



WAGES. 277 

in all the employments and occupations of society. 
These differences, however, are neither accidental 
nor arbitrary, but depend on certain laws which it is 
our purpose to point out. 

The joint instrumentality of labor and capital 
being necessary to the production of wealth, it fol- 
lows that the interests of the two parties are closely 
connected ; that capital is as dependent on labor as 
labor is upon capital. 

If this is so, the probabilities of an equitable di- 
vision will depend on the freedom with which both 
parties are able to act, and the equality on which 
they stand when the contract or copartnership is 
formed. 

'whatever, in social arrangements or civil institu- 
tions, destroys the natural freedom and equality 
of the parties, gives one an advantage over the 
other; and the party having the advantage will 
profit by it! 

Wherever, by class legislation, capital is allowed 
to tyrannize over its copartner, or concentrate itself 
in vast aggregations, and thus increase its natural 
power over labor, which cannot be thus brought into 
efficient and permanent combination, the latter will 
be compelled, in one form or another, to accept 
less than its just reward. 

But, however unjust or arbitrary laws or institu- 
tions may be, it is evident there are certain limits 
beyond which the wages of labor cannot be re- 
duced. 

The cost of labor is identical with the cost of 
maintaining the laborer in such circumstances that 
he can not only support himself, but rear a family 

24 



278 DISTRIBUTION. 

of children sufficiently numerous at least to keep 
the supply of laborers good. 

Hence he must receive what has been properly 
denominated necessary wages ; that is, to use in part 
the definition of Adam Smith, "such wages as will 
enable him not only to obtain the commodities 
absolutely necessary to the support of life, but what- 
ever else the customs of society render it indecent 
for persons in his rank in life to be without.' ' 

There being, then, no uniform and established 
standard of wages, they vary according to the ex- 
penses of subsistence in different countries, and the 
condition in which the laboring classes are willing 
to live. 

The cost of labor, or the current rate of wages 
that can permanently exist, depends on the neces- 
sary expenses of living; and these expenses, in turn, 
depend upon the condition of the laboring classes. 
Hence, other things equal, the more educated and 
morally and intellectually elevated any community 
of laborers may be, the higher will be their standard 
of wages. 

Wages are not high in proportion to the wealth 
of a community, but rather to the disposition that 
exists among those possessing wealth to pay it out 
for labor; and this disposition will depend much 
upon the security and profitableness with which capi- 
tal can be employed in production, and the enter- 
prise and aspirations of the people. 

We make the following divisions of our subject: 



WAGES. 279 

NOMINAL AND REAL WAGES. 

There is often a considerable difference between 
the nominal and real wages, or between the wages 
of the employe when received in money or when 
realized in such commodities as his wants require. 
As this is a question of fact, we refer to pages 191, 
192, of this work, as shown in Table V. In that 
table we find the prices of ten commodities, which 
the laborer would be likely to use in his ordinary 
consumption, such as sugar, coffee, molasses, pork, 
cheese, rice, salt, etc. 

By taking the wages of common laborers at certain 
periods, and the prices at corresponding periods, we 
ascertain the desired results. We have added the 
year 1864 from the best unofficial sources at hand: 

1836. 1840. 1843. 1864. 

Wages $1.25 $1.00 $1.00 $1.75 

Commodities .... 29.46 20.73 1482 46.96 

Labor required . . . 23J days 20| days 14| days 26-| days 

Nominal wages fell from 1836 to 1840 by one- 
fifth, or twenty per cent.; yet the real wages (as 
shown by the less number of days required to pro- 
cure the same commodities) were higher in 1840 
than 1836 by more than thirteen per cent. In 1843, 
when the nominal wages were but one dollar, real 
wages were about sixty per cent, better than in 1836, 
when the nominal wages were twenty-five per cent, 
higher. In 1864, when nominal wages were at one 
dollar and seventy-five cents, real wages were but 
little more than half what they were in 1843 at one 
dollar. 



280 DISTRIBUTION. 



CHAPTER III. 

PROPORTIONATE RISE AND FALL OF WAGES. 

Although wages rise and fall with the general 
rise and fall of commodities, they do not in equal 
proportion. The fact is one of common observa- 
tion: but the reason of this difference we do not 
recollect to have seen stated by any writer. For 
nearly all products there is both an actual and 
speculative, or a present and prospective, demand: 
for labor there is only an actual, present demand. 
When business begins to be particularly prosperous, 
there is a general demand for all kinds of merchan- 
dise, and prices gradually begin to improve. This 
at once occasions a speculative demand; for to buy 
will be to realize an advance: the larger the pur- 
chases, the greater the amount of profit. Every 
operation pays. The rise continues until every 
article bought and sold as merchandise goes up to 
the highest point. 

But no one speculates in wages. No one can, if 
he would, buy a hundred thousand dollars' worth 
of labor, and hold it for an advance, as he can of 
flour, sugar, or tea. Of course, labor has no ad- 
vantage from this kind of demand, but must rely 
entirely on that which is immediate and actual. 
Therefore it is that a general rise of prices, so far 
as occasioned by speculation, must always operate 
against the laborer, or the person employed on 
salary or wages. 



RISE AND FALL OF WAGES. 281 

But wages not only never rise so much as com- 
modities, but do not rise so soon. The reason is, 
that the rise of commodities is greatly accelerated 
by speculation ; while labor, as before stated, is not 
affected by that kind of demand. Hence it does not 
begin to rise until speculation has engendered a 
spirit of extravagance and increased consumption ; 
then wages make an advance about half as great, 
on an average, as that of merchandise in general. 

And, again, wages fall sooner than merchandise, 
because the latter may be held for high prices, if 
need be. The fall of merchandise is broken by the 
disposition and ability of the owner to hold on, and, 
as far as possible, prevent loss ; but the laborer can- 
not do this, — he must sell his commodity at once 
for the most it will bring. 

It is for those obvious reasons that wages, in times 
of depression, must fall, not only sooner, but lower, 
than property in general. 

A real rise or fall in wages is a matter difficult to 
ascertain with certainty. Fluctuations, since the 
introduction of mixed currency, have been frequent 
and violent, not in the rate of wages only, but of 
those commodities upon which the laborer subsists, 
and in which his real wages must be estimated. To 
determine whether actual value wages have ad- 
vanced or not since the commencement of the 
present century, for example, we must have the 
nominal rates, say in 1810, also in 1860. We must- 
then take the prices of commodities at the two 
periods; and, by comparison, we may arrive at a 
general conclusion. We should undoubtedly be 
satisfied that there has been a decided increase in 

24* 



-a 



282 DISTRIBUTION. 

the average value of wages. In our investigation, 
we should find that some articles were higher and 
some lower in price in 1860 than fifty years before. 
For example, while one dollar per day for labor 
was probably as high wages in 1810 as one dollar 
and a half in 1860, corn was worth the same at each 
end of the half-century; but cotton cloth, which 
was worth forty cents a yard in 1810, could be 
bought in 1860 for ten cents. In all manufactured 
articles, the difference is against the earlier labor; 
so that it is true the laborer of to-day enjoys many 
comforts which his predecessors could not obtain. 
The wants of the laborer have immensely increased. 
It would be impossible to give an inventory of 
them ; but, could we compare the consumption of 
laborers in 1810 with their consumption in 1860, 
we should find the advance surprising. The amount 
they expend for pleasure -travel, for example, is 
now very large, while fifty years ago it was hardly 
appreciable. So of the luxury of newspapers, mag- 
azines, etc. Some part of the expenditures of the 
poorer classes are for articles (like photographs) 
which were absolutely unknown a generation since. 
"Workmen may be less satisfied with their com- 
pensation now than fifty years ago; but it is really 
far greater. We do not say they have no cause for 
complaint, yet they are vastly better off than those 
who went before them. Wages, w r hen realized in 
commodities, have increased. The general product 
has been enlarged by the introduction of labor- 
saving machinery, and therefore their absolute share 
is greater. Whether their relative share, as com- 



DIFFERENCE IN WAGES. 283 

pared with that of the capitalist or employer, is 
greater, we shall find place elsewhere to discuss.* 

The laborer suffers nothing, but gains much, in 
the progress of civilization, if he is not despoiled by 
an unsound currency. That is his greatest oppressor, 
because his real wages — what he obtains in com- 
modities for his labor — is determined to a consider- 
able extent by the character of the circulating me- 
dium of the country. If the value of that, or its 
purchasing power, is less than it professes to be, he 
cannot fail to be injured by it. 



UNHEALTHY TRADES. 

Those occupations which, although not immedi- 
ately dangerous, are nevertheless unhealthy and 
abridge human life, ought to command more than 
ordinary wages. 

If a man is liable to be made sick, and conse- 
quently exposed to loss of time and expense for 
medical attendance, he should be compensated for 
that liability. If he shortens life in a particular 
employment, that should be a matter of considera- 
tion in determining the rate of wages. 

It is not for us to inquire here whether a man 
may rightfully engage in that which he knows will 
abridge life ; but that multitudes do so is beyond a 

* The very low rate of "corn wages" received by the English 
laborer in times past may be seen from the statement of Mr. 
Malthus (Pol. Econ., p. 228, Lond. ed. 1836), that wages had 
advanced, and wheat fallen, so much "that, from 1720 to 1750, 
a whole peck of wheat could be had for a day's labor." 



284 DISTRIBUTION. 

doubt. Regarded in a merely economical point of 
view, it is obvious that, on this account, some 
laborers should receive much higher compensation 
than they do at present. 

Agriculture is evidently the normal employment 
of man, that in which he lives longest and enjoys 
the greatest health. Every other calling is un- 
wholesome to the exact extent in which it departs in 
its condition from the agricultural ; and the rate of 
wages should be adjusted to a scale constructed on 
this principle. 

THE EDUCATION OF THE LABORER. 

Other things equal, the man who has received 
merely a common-school education will obtain 
higher wages in any employment than one who 
is entirely illiterate. He has some mental disci- 
pline, will therefore be more intelligent and capable, 
will better understand and recollect the directions 
of his employers, better comprehend the nature of 
his duties. If need be, he can keep an account of 
what he does. He has in some measure learned to 
think ; he will have a higher sense of self-respect, 
and be more reliable. 

The difference in favor of a workman who is so 
far furnished with intelligence that he can do his 
own share of thinking, instead of relying entirely 
upon his employer for every exercise of judgment 
and forecast, is very great to the employer. If the 
latter is compelled to supply all the head-work, he 
must be in constant attendance, and exercise the 
utmost vigilance. Five stolid workmen will cost 



FRUGALITY OF THE LABORER. 285 

him as much time as ten intelligent ones, and a 
great deal more care, vexation, and loss. Hence 
intelligent labor is worth more, and will bring more. 

THE FRUGALITY OF THE LABORER. 

Another important consideration in connection 
with this part of our subject is, that the educated 
laborer will be more likely to appreciate his true 
interests, and save a part of his earnings. Every 
dollar he saves and accumulates in the shape of 
property, of whatever kind, w 7 ill render him more 
independent; and the more independent he is, the 
more likely he will be to get fair wages. He be- 
comes, to a certain extent, a capitalist, and can 
measure strength with capital on better terms. 

The man who has nothing upon which to subsist 
to-day must w T ork to-day, at whatever price, or 
starve; while he who can get on for a fortnight 
without employment may choose whether he will 
work for less than a fair price to-day or not. 

This is a matter of great importance to the 
laborer ; for the natural advantage the capitalist has 
over him is, that the latter can wait a little, while 
the former must work now. The laborer or em- 
ploye of whatever kind (for all are subject to the 
same law) should strive earnestly to make himself 
as independent in his position as possible. Hence self- 
denial and economy, w T hen exercised by those who 
live on wages or salaries, are amply repaid by better 
terms of service. There is a homely adage, "that 
a man is poorer for being poor," which laborers, of 
all others, should bear in mind. 



286 DISTRIBUTION. 



DISTINCTION OF SEX. 

Women receive less wages than men. This is 
doubtless true in all the so-called civilized countries. 
The difference may be stated at about fifty per cent, 
to their disadvantage; that is, where the man re- 
ceives one dollar, the woman receives fift}^ cents.* 
And this, too, not only where the services of the 
two sexes differ, but where they are identical, as in 
school-teaching, type-setting, etc. Why this dis- 
parity ? 

Political economists, so far as we know, have not 
troubled themselves much about it. Philanthropists 
have taken cognizance of the fact, and have sought 
to apply a remedy, but generally, w r e may say uni- 
formly, with little success. We shall not go at 
length into the subject, only endeavor to state the 
causes from which we suppose the difference arises. 
These may suggest the remedy. 

The first consideration to be noticed is the fact 
that the two sexes exist in remarkably equal num- 
bers throughout the world. There are as many 
women as men. 

The second, that while almost all occupations and 
employments are accessible to the male sex, but 
comparatively few are, by the opinions and customs 
of society, regarded as proper for women. One, 
therefore, has the whole field of life in which to act; 
the other is limited to a part. 

* The average monthly wages of male teachers in the public 
schools of Massachusetts, 1857-8, was $49.87. 

The average monthly wages of female teachers in the public 
schools of Massachusetts, 1857-8, $19.63. 



WAGES OF FEMALES. 287 

On the principle, then, of supply and demand, the 
number of females being as great as that of males, 
while their employments are so much fewer, they 
must of necessity work for less reward. The supply 
is greater than the effective demand. 

A third fact is, that the part of labor assigned to 
women is of a more dispensable character. A great 
part of the labor of women is connected with the 
comforts, conveniences, and luxuries of life: hence 
it can and will be dispensed with, unless it can be 
had cheap. The staple productions — corn, cattle, 
iron, cotton, and the like — must be had, at whatever 
price or cost of labor; but not so with the thousand- 
and-one little articles of beauty, taste, and fashion 
which female industry creates in every household. 
For example: suppose a farmer employs two men to 
carry on his agricultural labors, and usually the same 
number of females in the work of the house. Now, 
if he should be so pushed for means as to be obliged 
to dispense with one of his employes, which would 
it naturally be, one of his hired men or hired maids? 
Doubtless one of the latter; because by doing so 
he w 7 ould only lose some of the conveniences and 
comforts of life, without, perhaps, much sacrifice of 
property ; while in the other case he would lose 
part of his crop. As now employed, by far the 
greater part of female labor creates no values, no 
vendible commodities. 

There seems to be a prevalent feeling at the 
present day that the wages of woman ought to be 
increased; that her position ought to be less de- 
pendent. But those who are satisfied with the ex- 
isting customs and opinions of society, by which the 



288 DISTRIBUTION. 

sphere of woman is restricted to its present limits, 
ought to be equally well satisfied with the compen- 
sation allotted her ; for it is just such as must follow. 

No attempt to enhance her wages by legal enact- 
ments or appeals to human sympathies or benevo- 
lent organizations need be made; for there is a law 
that overrides all these,— the law of supply and de- 
mand; a law founded in nature, inexorable and im- 
mutable.* An increase of her wages can result only 
from an increase of her employments, — of employ- 
ments, too, of an equally indispensable character as 
those of the other sex. 

That a change of this sort is fortunately in pro- 
gress in most civilized countries, and especially in 
the United States, is apparent. The introduction 
of machinery is doing much to equalize the wages 
of the two sexes. Water and steam are now made 
to accomplish that which could once be done only 
by human strength, leaving the residue of labor, 
which is, to a great extent, the exercise of intel- 
ligence and attention, to be performed by persons 
of either sex. Hence there is now a great demand 
for the labor of females where there was once none 
at all. There is less demand for muscle, and more 
for mind: this brings woman nearer an equality 
with man. 



A NEW CLASSIFICATION OF WAGES. 289 



A NEW CLASSIFICATION OF WAGES. 

There have now been presented most of the con- 
siderations we have room to offer in regard to the 
subject before us, and in somewhat the usual manner 
of arrangement. We propose, in conclusion, to give 
what may be a new, but, as we think, a more natural 
and scientific classification of wages. 

Properly considered, wages are paid for three dif- 
ferent kinds of power ; viz.: 

1st. Physical Power, or mere muscular effort 
with the spade, shovel, hoe, and the like; the kind 
of labor least elevated above that of the horse or ox. 
This power is most plenty, comes by nature, costs 
the least, and is therefore cheapest. 

2d. Mental Pow^r, — those faculties of mind that 
give ability to manage complicated affairs, the gen- 
eral operations of agriculture, manufactures, com- 
merce,— all services, in fact, that require the exercise 
of judgment, discretion, reflection, calculation. Such 
power is more rare than physical force. It will 
therefore command a higher price, especially in a 
progressive state of society. To this class may be 
referred all persons of natural ingenuity, inventors, 
authors, and men of genius. Such often receive 
great rewards. 

To prepare men for the exercise of their intel- 
lectual powers, a considerable amount of education 
and training is necessary. Hence such powers are 
not only more rare, but more expensive, than brute 

25 



290 DISTRIBUTION. 

force, and therefore rightfully command higher com- 
pensation. 

3d. Moral Power. As man advances in civiliza- 
tion, — as wealth, its great concomitant, increases, 
and social combinations are multiplied, — it becomes 
more and more necessary that important trusts 
should devolve on individuals occupying particular 
stations. With all the checks and securities that 
can be devised, the greatest reliance must ever be 
placed on the character of the person to whom the 
trust is committed. Oftentimes the honor and inter- 
ests of vast bodies of men must be committed to a 
single hand. 

Hence arises a necessity for something more and 
higher than physical and mental faculties or qualities 
combined, — something that shall furnish a guaranty, 
irrespective of all contrivances, that these high 
trusts shall be faithfully discharged. That guar- 
anty is found in the moral power of the individual, — 
that power which gives such a control over appe- 
tites, passions, and propensities as affords assurance 
that under no circumstances of trial or temptation 
will he ever depart from the strict line of duty. 

When men are found possessing this high moral 
power over themselves and the accidents of their 
position, they will, of course, be called to places of 
high responsibility and trust. Now, as such men 
are more rare than those having only physical power, 
or physical and mental power combined, they will 
command higher rewards, — the highest paid for 
any class of services. 



LABOR COMBINATIONS. 291 



CHAPTER IV. 



LABOR COMBINATIONS. 



In connection with the subject of wages, it seems 
necessary to inquire somewhat in regard to the 
rights of the laborer, since upon these his compen- 
sation must to some extent depend. 

Under a government acknowledging the rights 
of all men, the laborer must, of course, have the 
same rights as his fellow-citizens, neither more nor 
less. He asks no favor, and grants none. He de- 
mands the same justice, the same freedom, accorded 
to others. He should be able, so far as law is con- 
cerned, to work when and for whom he chooses, 
and for such consideration as he can get in the great 
competition of industry. The law cannot say how 
much he shall accept for wages, how many hours 
shall constitute a day's work, nor how much the 
employer shall give him. Each is left perfectly 
free, and the competition is simply between labor 
and capital. 

But the laborer is not under obligation to act as 
an insulated individual, any more than the capitalist. 
If the latter is permitted, and even authorized and 
encouraged, to combine with his fellows in order to 
enhance the power and profits of capital, it is equally 
the right of the laborer to do the same, and equally 



292 DISTRIBUTION. 

the duty of the legislator to give him any facilities 
for doing this he may justly demand. 

If capital is incorporated, labor should have the 
same privilege. If favors in any case are awarded 
to one party, they should certainly be furnished to 
the other. 

Laborers, then, may combine, if they deem it best 
to act in concert in regard to their interests. 

As a matter of fact, they do form associations for 
mutual benefit. In England, these "friendly so- 
cieties," as they are called, are numerous, and often 
exert a very happy influence. They are formed for 
a great variety of specified objects. 

Some of these are merely charitable, — for assist- 
ing members when searching for employment, — for 
relieving them in case of disability from sickness, 
and for similar purposes. 

Others are for the diffusion of intelligence, like 
lyceums, mechanics' institutes, etc., or for moral and 
social elevation and improvement, as associations to 
discourage the use of intoxicating drinks, and other 
pernicious and degrading habits. Such societies 
have been found highly advantageous, especially in 
Great Britain. 



TRADES UNIONS. 

One of the forms in which these associations make 
their appearance is that of trades' unions. The 
principal object of these, generally, is the increase 
of wages. The different trades often combine for 
this purpose, and endeavor to fix the rate at which 
they will work. This, it would seem, they have an 



LABOR COMBINATIONS. 293 

undoubted right to do: whether it be good policy is 
another question. 

Men may mutually agree, for example, that they 
will work only ten hours per day, and will have two 
dollars per day as wages. All who voluntarily join 
such an agreement are in honor bound to keep it; 
and, if the association binds itself to support those 
who are turned out of employment, it has also the 
undoubted right so to do. 

But, while all this is conceded, it does not follow 
that if a member violates the rules of the society, 
his associates may inflict any punishment upon him 
for doing so, except such as the law of the land 
authorizes. A trade's union is not an imperium in 
imperio. It has all the rights which each individual 
member has, and no more. Hence any attempt to 
inflict punishment upon such delinquent is as much 
an infringement of his rights, and of the laws of the 
'country, as if it were done by an individual. 

Again: nor has a trade's union any right what- 
ever, moral or legal, to interfere in any manner 
with those of their craft who do not choose to enter 
into their association. If such persons prefer to 
work at a less rate of wages than that established 
in the tariff of the union rather than not work at all, 
they have the most unquestionable right to do so; 
and any attempt to prevent them by brute force is 
an infringement of personal rights which govern- 
ment is bound to resist to the utmost. Such an act 
is merely the act of a mob, and has no justification. 
Nay, more: under a free government, where these 
very men who have thus combined are citizens, 
with the right of suffrage, and, in common with 

25* 



294 DISTRIBUTION. 

others, elect those who enact the laws under which 
they live, any outrage of this kind is an overt act 
of moral treason against republican institutions. It 
is a virtual declaration that these institutions have 
failed and must fail to give adequate protection, and 
therefore these aggrieved parties are obliged to re- 
sort to violence ; in other words, to override the 
government, the Constitution, and the laws. 

STRIKES. 

The foregoing argument covers the whole ground 
of right or wrong in regard to strikes. 

Members of a trade's union, believing that their 
wages are inadequate or less than their employers 
can well afford, by mutual agreement strike for 
higher wages. If not granted, they tarn out To 
produce effect, and aid in obtaining what they de- 
mand, they parade the streets with banners and 
music. Very well, so far; for other associations 
do the same, whenever they see fit. If these dem- 
onstrations do not interfere with the general avo- 
cations and pursuits of the public, there can be no 
reasonable complaint. The economy and utility of 
such demonstrations is another matter; but the 
right to make them need not be disputed. 

But when, in addition to this, a procession, in- 
stead of peaceably passing through the streets, pro- 
ceeds to compel by force every person engaged in a 
particular trade to quit his employment, the case is 
entirely altered. The procession has become a law- 
less mob, and is to be dealt with like any other body 
of men disturbing the public peace. 






LABOR COMBINATIONS. 295 

All demonstrations of violence of this kind are 
in utter antagonism, not only to the institutions of 
society in general, but to the real and permanent 
interests of the party which makes them. They do 
harm, and only harm, in the long-run, both eco- 
nomically and morally, and degrade, instead of ele- 
vating, the laboring classes, who really have much 
to hope from their associations of various kinds, if 
they be peacefully and properly conducted. There is 
no one thing by which the interests of the laborer 
can be more effectually promoted than by associa- 
tions for good and useful purposes, managed in a 
sensible and becoming manner ; and, on economical 
as well as moral and social considerations, they 
would then be worthy the approbation and patron- 
age of the capitalist, whose interests would be 
promoted thereby; but it should ever be remem- 
bered that individuality is to be interfered with as 
little as possible, since the more there is of indi- 
vidual responsibility, socially and politically, the 
better; the less men are called upon to resign their 
freedom of action and personal reliance and choice 
in the various duties and emergencies of life, the 
more advantageous to their welfare and happiness. 

COMBINATIONS TO RAISE THE RATE OF WAGES. 

But strikes cannot permanently raise the rate of 
wages. Combinations of workmen, taking advan- 
tage of the peculiar state of trade when commodities 
are in great demand, may, for the moment, extort, 
from the necessities of their employers, an addition 
to their compensation ; but they gain no substantial 



296 DISTRIBUTION. 

advantage. When trade becomes dull, they are cer- 
tain to be placed again in the power of the employer. 
Especially is it injurious to the interests of the work- 
men, where by strikes they have forced out of em- 
ployment large numbers, whom they are obliged to 
support out of previous accumulations. In such 
cases, they consume their own little savings, injure 
the interests of those who have emplo} 7 ed them, and 
render them less able to pay wages in the future. 

Freedom, protection, and justice are what labor 
needs, and must have, or its condition will be de- 
pressed, and its productiveness diminished. With 
freedom, the laborer can work for whom he will ; 
with the ballot, he can insure to himself and his 
interests protection and justice. 

CO-OPERATIVE ASSOCIATIONS. 

There is yet another mode in which those who 
depend upon wages may secure very great advan- 
%/ tages to themselves; viz., by co-operative associa- 
tions, formed for trading or industrial purposes. 
These are already somewhat extensively introduced 
into the United States; and, so far as is known, 
have been attended with a good degree of success. 
Prof. Fawcett (now M.P.), in his " Manual of Polit- 
ical Economy/' has given a very full and interesting 
account of certain co-operative societies in Europe, 
from which we extract the following: 

"The co-operative movement in England was first commenced 
at Boehdale.* About 1844, a few working-men in that town sus- 

* The residence of John Bright, M.P., and where his family 
carry on a large manufacturing business. A. W. 



LABOR COMBINATIONS. 297 

pected, and no doubt justly so, that they were paying a high price 
for tea, sugar, and other such articles, when they at the same time 
believed they were not free from adulteration. They therefore 
said, 'Why should we not club together sufficient among our- 
selves to purchase a chest of tea and a hogshead of sugar from 
some wholesale shop in Manchester?' This they did ; and each 
one of their number was supplied with tea and sugar from this 
common stock, paying ready money for it, and giving the same 
price for it they had been charged at the shops. When all the tea 
and sugar had thus been sold, they agreed to divide the money 
thus realized among themselves, in proportion to the capital each 
had subscribed. They found, to their surprise, that a large profit 
had been realized. The great advantage of the plan became self- 
evident; for not only were they provided with a lucrative invest- 
ment for their savings, but they obtained unadulterated tea and 
sugar at the same prices they had been previously obliged to pay 
for the same articles when their quality was deteriorated by all 
kinds of adulteration. A fresh stock of tea and sugar was, of 
course, purchased. Other laborers were quickly attracted to join 
the plan, and subscribe their savings ; soon the society was suffi- 
ciently extended to justify them in taking a room, which they used 
as a store, and the success of the plan fully kept pace with its 
enlargement. 

11 This society, now famous as the Rochdale Pioneers, possessed 
in 1865 a capital of about £72,000. The business was not long 
restricted to articles of grocery : bread, meat, and clothing were 
all sold on the same plan. Their capital so rapidly increased that 
they were soon enabled to erect expensive flour-mills ; and a sup- 
ply of pure bread, as well as unadulterated tea, was thus insured. 

"A ready-money system is so scrupulously adhered to that 
even a large shareholder cannot make the smallest purchase on 
credit. The managers of the business are chosen by the general 
body of shareholders ; and, in almost every case, an excellent selec- 
tion has been made. 

" With regard to distribution of the profits, a sufficient sum is 
at first allotted to pay a dividend of five per cent, on the capital ; 
the remaining profits are divided on the following plan : Every 
person, when he purchases goods, receives one or more tin tickets, 
on which is recorded the amount of his purchases. At the end of 
. every quarter each person brings these tin tickets, which form the 
record of his aggregate purchases ; and the remaining profits are 



293 DISTRIBUTION. 

distributed in proportion to the aggregate amount which each in- 
dividual has expended at the store. Thirteen pence in the pound 
(equal to about five and a half per cent, on the amount purchased) 
is the average amount which, in this manner, is received as a draw- 
back." An annual dividend was made in 1865 of £25,000, among 
5500 members. 

The reasons for this extraordinary success given by 
Prof. Fawcett are the ready-money system, selling 
for cash and buying for cash, — turning capital over 
many times a year, — a large custom assured by the 
large membership, and economy of administration. 

A very successful association of co-operative 
masons has existed in Paris since 1848, commenc- 
ing with seventeen members, with a capital of $70. 
It has grown to very large dimensions, has a capital 
of over $70,000, and contracts for the building of 
the largest hotels and railway-stations. 



CONCLUSIONS. 

We have been thus full in our statement in regard 
to co-operation, because it seems to offer a more 
satisfactory solution of a great economical problem 
— the relations of capital and labor — than any other 
hitherto presented ; and the prospect now is that it 
will soon be introduced extensively into the trade 
and manufacturing industry of the w r orld. 

To all this the political economist does not object ; 
on the contraiy, he looks complacently on the grand 
experiment. He will only insist that co-operative 
undertakings, as well as all others, to be successful, 
must be carried on in strict conformity with those 
laws of production and exchange which govern in- 



LABOR COMBINATIONS. 299 

dividual transactions. Co-operation can have no 
dispensation from the laws of trade. 

If the management of a co-operative establish- 
ment is intrusted to incompetent hands, — to those 
who have neither the knowledge nor capacity to 
conduct it wisely and efficiently, a failure must be 
the consequence. If dishonest and unfaithful per- 
sons are employed, disappointment and loss will be 
certain; and, especially if credits are given, the 
final result will be disastrous. We regard it as in- 
dispensable that no credit ivhatever should be granted. 
The cash principle has been, so far as we can learn, 
strictly adhered to by co-operators in Europe. The 
example set by the Rochdale Pioneers of selling en- 
tirely for cash on delivery, which insured their mar- 
vellous success, should be everywhere followed. We 
could have no faith whatever in any such association 
which bought and sold on credit. This for several 
reasons : 

1st. Because if credits were given, the purchases 
must be made on credit, and of course the saving 
which everybody knows is made in purchases by 
cash payments could not be realized. This alone 
would make a difference of at least a moderate 
dividend to the co-operators. 

2d. Because if credits are given, a considerable 
additional expense must be incurred in keeping ac- 
counts and collecting bills. The attention of the 
managers must be divided and their minds distracted 
by the vexations and delays inseparable from the 
adjustment of book accounts. 

With a co-operative association, the goods should 
always be in one hand or the cash for them in the 



300 DISTRIBUTION. 

other. Such companies cannot give and take credit 
like private firms and joint-stock companies. As 
every one of the co-operators must be bound for 
all debts incurred, every prudent man having any 
pecuniary responsibility would be unwilling to en- 
tangle himself with a concern that might occasion 
him loss, the extent of which it would be impossible 
for him to anticipate. 

We are thus decided and emphatic in regard to 
the giving of credit by the associations in question, 
because we desire a wide extension of the co-opera- 
tive principle and its permanent success, and feel 
confident that if immediate cash payment is not 
insisted on, there will be heavy losses to those who 
can ill afford to meet them, and the general adop- 
tion of the principle be delayed, though we should 
not doubt that it would finally triumph. 

Co-operation will be found, of course, much more 
difficult in manufactures than in trafre, for several 
reasons : 

a. A larger capital will be required, and a greater 
proportion generally in that which is fixed, in real 
estate, machinery, etc. 

b. There will be greater need of skilled labor, 
and a greater diversity of talents and acquirements, 
than are demanded in the mere purchase and sale 
of goods. 

c. The number of persons actually employed in 
work will be greater; yet all must work in har- 
mony and to mutual satisfaction, or there will be 
no successful result. 

d. The sale of fabrics, if disposed of for cash, in 
competition with the large establishments, private 






LABOR COMBINATIONS. 301 

and corporate, engaged in every branch of manufac- 
turing industry, presents another obstacle to the 
introduction of co operative labor. We have long 
regarded the credit system, so universally adopted 
and so widely extended in the United States, as the 
greatest obstacle to a participation in profits on the 
part of the laborer. 

e. Another very obvious consideration in regard 
to the distinction between the operations of a trad- 
ing and a manufacturing association is, that with the 
former, the customers of the establishment are 
already secured without effort, and their patronage 
certain, since they will be for the greater part in- 
terested as members of the concern ; while in manu- 
factures, it w T ill be generally true that but a small 
part of all the articles produced will be required by 
the wants of the co-operators, and consequently 
must find a market, however difficult that may be. 

All these obstacles are overcome and the object 
fully attained by adopting another form of associa- 
tion, which may perhaps be properly called 

CO-OPERATIVE PARTNERSHIPS. 

Well-established firms in any department of in- 
dustry may offer the workmen in their employ a 
share in the net profits of their establishments. For 
example, a coal-mining company may propose that 
after allowing a certain profit upon the capital em- 
ployed, the workmen shall receive, say ten per cent, 
of the net profits of each year, to be divided among 
the workmen according to the amount of labor per- 
formed by each during the year. 

26 



302 DISTRIBUTION. 

This has been tried with most favorable results in 
Great Britain, France, and other parts of Europe, 
and it has been found, in some cases at least, if 
not in all, that the workmen were so much more 
efficient and careful of making waste of tools, 
machinery, and materials, that while receiving an 
addition to their wages by a share of the profits, the 
entrepreneurs or employers have not diminished their 
incomes. This has not only given satisfaction to 
both parties, but has increased production. The 
influence upon the morals of the laboring classes 
has been excellent. 

The results of experiments of this sort thus far 
made seem to show that this kind of co-operation 
will be adopted to a large extent in certain depart- 
ments of production. That it is feasible in any 
established business is certain ; that it will be gen- 
erally adopted depends, as it now seems, upon the 
enlightened self-interest of employers. That it 
may become very general in all the principal me- 
chanical and manufacturing industries is at present 
highly probable. It rests entirely with the employ- 
ing class to say to w T hat extent it shall be carried. 
It is not necessary for the accomplishment of the 
object sought that employers should relinquish in 
any degree the entire control and management of 
their business affairs. It is only a share of the net 
profits with which the laborer has any concern. 

REDUCTION OF THE HOURS OF LABOR. 

An extensive movement is being made in the 
United States and Europe to reduce the number of 
hours constituting a day's work. 






LABOR COMBINATIONS. 303 

The present limit is generally ten hours, and 
eight hours is demanded, — equal to a difference of 
twenty per cent. This movement is an important one, 
affecting in its results not only the strictly laboring 
class but all others, and therefore entitled to a care- 
ful examination. 

What will be the economic effects of the pro- 
posed change were it practicable ? 

Only in one of three ways can the object be 
attained : 1st, by the universal consent of the em- 
ploying class; 2d, by the equally universal consent 
of the laboring class ; or 3dly, by the authority of 
law. 

a. That the employing class [entrepreneurs) will 
voluntarily consent to the contraction of their opera- 
tions by twenty per cent, and the corresponding loss 
in the use of their entire capital employed in produc- 
tion, is not to be expected. 

6. That the laboring class will unanimously agree 
to reduce their hours of labor, and consequently their 
incomes by twenty per cent, is not to be supposed, 
especially when a great proportion of them now 
work by the piece, and would rather extend than 
contract their hours of employment. Precisely how 
great the proportion of piece-workers is has never 
been determined that we know of, but from some- 
what extended inquiries we have ascertained that 
in many of the largest establishments the proportions 
of this class of workmen is equal to fifty to eighty 
per cent, of the whole, and the constant tendency is 
to the increase of piece-work by new inventions of 
machinery adapted to the purpose. 

c. Whether the government of any country can 



304 DISTRIBUTION. 

be induced to enact that no man shall work for 
wages more than eight hours per day, will certainly 
depend in all republics upon the sentiments of the 
people. If the object commends itself to the intel- 
ligence and good sense of the constituency to such an 
extent that the necessary enactment can be secured 
and enforced, the object may be effected. This seems 
at present the only possible practicable way to es- 
tablish eight hours as a day's work. Waiving all 
objections to such a measure that may here be stated, 
let us, for the sake of the argument, suppose that the 
eight-hour limit is fully established as a day's labor. 

EFFECTS OF RESTRICTING THE HOURS OF LABOR. 

The first effect of this must be to reduce the 
amount of commodities produced. It is certain that 
men cannot produce as much in eight as in ten 
hours, and consequently production must be propor- 
tionally diminished. We know it has been claimed 
that as much can be produced in eight hours as in 
ten, because the workman can labor with more 
energy and efficiency for the shorter than the longer 
time ; but the practical question is, will he ? Why 
should he ? Will he have any greater inducement, 
any stronger motive ? He is still at work by the 
day, and what difference can it make to him whether 
he works faster or slower so that he works as fast as 
his fellow-laborers generally? Certainly none at 
all. Why, then, should he use extra effort? We 
may safely conclude he will not, and consequently 
production must in the long-run be lessened to the 
extent of the diminution of labor time. 






LABOR COMBINATIONS. 305 



ECONOMIC EFFECTS UPON THE LABORER. 

Will the laborer secure as large compensation for 
eight as for ten hours ? It has been contended with 
great earnestness and apparent sincerity that he will; 
indeed, it has been insisted that he will get higher 
wages. 

To ascertain the truth of this, let us suppose that 
fifty hours' labor are required to produce a gold 
eas;le worth ten dollars. Then working ten hours 
per day the miner would get an eagle in five days, 
giving him two dollars per day as wages ; working 
eight hours per day, he must expend six and a 
quarter days in getting his ten dollars 5 worth of gold, 
and his wages would be but $1.60 per day, because 
81.60x6.25 = 810.00. 

The same result would be equally certain in regard 
to every other product. It matters not in what form 
the value is produced, the amount will be as the 
quantity of labor required; and therefore, by an in- 
exorable law, the compensation or wages will be in 
the same proportion. 

The mistake of those who assume the contrary, 
arises from not taking into consideration the differ- 
ence between money-wages and commodity-wages, 
or nominal and real wages. 

The question for the laborer or salaried man to 
consider is, not, as we 'have elsewhere said, how 
many dollars he can get for his labor, but how much 
of food, clothing, shelter, and other desirable objects 
he can secure ; and in that view of the case, if he 
shortens the hours of his labor he will diminish to 

2G* 



306 DISTRIBUTION. 

an equal extent the compensation he receives, 
whether he is working for himself or on wages. 

As this is an important point in our discussion, 
we give the following illustration : 

Suppose a hat to require thirty hours', or three 
days', labor, of ten hours each, and a pair of boots 
an equal quantity. The hatter can then obtain a pair 
of boots for three days 5 labor, and the bootmaker a hat 
for the same. But the eight-hour limit being adopted, 
the hatter must work three days and three-quarters 
for his boots, and the bootmaker the same length of 
time for his hat. Each party makes a loss of six 
hours, or three-quarters of a day, upon his purchase; 
each must expend the labor of three-fourths of a day 
more to obtain his object — equal to a loss upon the 
laborer's full time of twenty per cent., and that must 
be the actual average loss upon his whole wages by 
restricting him to eight hours' production instead of 
ten. He works twenty per cent, less time, and has 
for the same number of days' work twenty per 
cent, less of commodities ; he virtually reduces his 
entire income to that extent. 

The great point overlooked by those who expect 
equal wages for less labor is, that the laborer is a 
consumer as well as producer, — that he consumes as 
much in some form as he produces; for if he saves 
money to purchase or build a house, or invest in 
any other manner, the result to him will be same, 
for all values will be equally affected. 

A simple proposition will clear up much obscurity 
in regard to the point under consideration. It is 
this : A general rise of wages is of no advantage to 
those who work for wages ; that is, if throughout 



LABOR COMBINATIONS. 307 

the world all wages were advanced equally, the result 
to the wages class would be the same as if no such 
advance had taken place. If the laborer should get 
more money for his labor, he must pay more for all 
his purchases; because values would not be increased, 
even if prices were advanced. 

Again, if as much compensation can be had for 
eight hours as for ten, why not as much for six 
hours as for eight, for four hours as for six, for two 
hours as for four? 

If the principle assumed, that as high wages may 
be had for the shorter as for the longer time, were 
sound, it would hold throughout ; but we see it does 
not, that it becomes absurd, and therefore conclude 
it to be false. 

EFFECTS UPON CAPITAL. 

Another consideration connected with this subject 
is the effect that a diminution of labor would have 
upon capital. 

Its profits, like the workman's wages, must be 
abridged, and the increment that could be yearly 
added to it would be diminished. If production 
were reduced by one-fifth, the previous increment 
would be reduced far more than that, because there 
could not be so large a surplus over necessary con- 
sumption. A greater part of the gross earnings 
must be consumed. Then, should the population 
go on increasing at its former rate, while capital 
was increasing at a slower one, the latter would 
eventually become more scarce, and consequently 
more difficult of attainment. Would this inure to 



308 DISTRIBUTION. 

the advantage of the capitalist, the labor class, or 
the country generally? 

The loss that arises from a reduction of the hours 
devoted by labor and capital to the production 
of wealth must fall upon both ; but the greatest 
loss in the aggregate must fall upon the laboring 
classes, because they are by far the most numerous. 
If it requires five days' labor to produce a barrel of 
flour instead of four, it is clear that the class con- 
suming the most flour must be the greatest sufferer. 

Time is the working-man's capital, that which he 
uses in the production of wealth* If there be three 
hundred working days, of ten hours each, in a year, 
he has three thousand hours per annum to invest, 
through his labor, in such commodities as he de- 
sires. At eight hours per day he would have but 
twenty-four hundred. The latter limit being uni- 
versally adopted, must not the aggregate production 
of the world be diminished by one-fifth? Then, if 
the dividend, or amount to be divided, is reduced 
one-fifth, must not the individual quotient, or each 
one's share, be equally diminished ? And must not 
the same principle apply to the capitalist whose 
operations are curtailed in the same proportion ? 

It may be said that it has never been proposed 
that eight hours should be fixed as the limit of labor 
for the whole industry of a nation, but only for that 
part of it engaged in manufactures and mechanical 
employments. But what would be the result of such 
an arrangement? 

If the agriculturist must work ten hours, while 
the shoemaker, for example, wrought only eight, 
is it not certain that farm-laborers would become 



LABOR COMBINATIONS. 309 

shoemakers so fast as in a short time to reduce the 
wages of the latter to an equality with the former ? 
No one can reasonably doubt that such would be 
the result. 

"We have endeavored thus far to show only some 
of the economic effects that must follow a reduction 
of the hours of labor. 

Of the social and moral results of such a measure 
we have said nothing. That subject is not within 
our province. It belongs to the dominion of soci- 
ology. 

It may be true that, notwithstanding all that has 
been offered, however correct it may be, it is for the 
best interests of all mankind that the proposed re- 
duction of the hours of labor should take place. 
There are certainly other and higher considerations 
than the greatest production and accumulation of 
wealth. Would society be improved and elevated 
by such a reduction ? Would the highest interests of 
man, whether laborer or capitalist, be promoted by 
it ? This problem it is the province of social science 
to examine and solve. 

EQUALIZATION OF WAGES. 

It is maintained and practically enforced by 
some labor associations that all workmen in the 
same trade should have equal wages, the active and 
the stupid, the skilful and unskilful, the indus- 
trious and the indolent. So that they are employed, 
all must stand on the same level. It is sufficient 
to say that such a policy must repress all emula- 
tion, all desire for improvement, and all progress; 
for the good reason that men do not act except from 



310 DISTRIBUTION. 

a motive, and there could be no emulation, no motive 
for improvement, where there was no reward for it. 
Should such an unwise policy be generally adopted 
(which seems in the highest degree improbable), 
the production of wealth would be greatly dimin- 
ished and the laboring classes sadly demoralized. 

INTERFERENCE WITH APPRENTICESHIP. 

In some associations attempts have been made, 
and with more or less success, to prevent the in- 
crease of workmen in a particular branch of indus- 
try, by forbidding any one to employ apprentices 
except under certain restrictions and limitations. 

This is a direct, arbitrary, and most dangerous in- 
terference with that freedom of labor which is en- 
tirely essential to the greatest production of wealth 
and the most complete harmony of industrial in- 
terests. 

"With freedom to enter or leave any particular 
branch of production, it is certain that under the 
natural law of supply and demand, each would 
secure just that amount of labor which its own 
best interests and the general welfare required ; 
while under a labor monopoly like that of which we 
speak, the trade itself for whose benefit it was de- 
signed would not be developed in its true propor- 
tions, and the public in general would be injured. 
Were the same policy adopted by all trades, a gen- 
eral war of interests w T ould be the certain conse- 
quences, resulting in general disadvantage. 

A combination to prevent the learning of a trade 
in no way differs in its effects from any other mo- 



PROFITS. 311 

nopoly or interference with the industry of a coun- 
try, — it interrupts only to diminish production and 
demoralize labor. 



CHAPTER V. 



PROFITS. 



By the term "profits," we mean that share of 
wealth which, in the general distribution, falls to 
those who effect an advantageous union between 
labor and capital. 

All wealth, being the product of labor and capital, 
would be divided between them, were it not neces- 
sary that still another agent should take part in 
production; viz., an employer, manager, under- 
taker* (entrepreneur), projector, contractor, business 
man, merchant, manufacturer, farmer, or whatever 
else he may be called, whose services are indis- 
pensable. 

Capital cannot move itself; labor cannot com- 
mand capital, and therefore has little power : hence 
the necessity for an employer, or business man, to 
effect a union, and put both in successful operation. 
Capital without labor is an infant; labor without 
capital, a cripple. 

* "It is to be regretted," says J. Stuart Mill, "that this word, 
in this sense, is not familiar to the English ear. French political 
economists enjoy a great advantage in being able to speak of les 
profits de V entrepreneur." 



312 DISTRIBUTION. 

The parties, then, to production are, (1) the 
laborer ; (2) the capitalist ; (3) the employer, or 
manager. Each has a distinct province, and a 
separate interest; and each must receive his reward, 
or share of the general product. 

This is, undoubtedly, the natural division of the 
subject. To confound the capitalist with the em- 
ployer, as often is done, throws the whole matter 
into confusion. There is no occasion whatever for 
this. The man who owns the capital, and receives 
his compensation for its use in the shape of rent, 
or interest; the laborer, who applies muscular or 
mental power to the production of value; and the 
man who, as employer or manager, relieves the first 
from the anxiety and risks of trade, and furnishes 
the second w 7 ith the means by which alone he can 
work to advantage, — are separate persons, with dis- 
tinct interests. 

The capitalist, as such, has no share in the profits 
of business. He does nothing but loan his wealth, 
which, by the value of its services, brings him an 
income, in the shape of rent for real, or interest for 
personal, estate. If he is careful in regard to the 
securities he takes or the credit he gives, it is of no 
immediate consequence to him whether trade is dull 
or brisk, whether profits are high or low; but, of 
course, it is true that the capitalist has a general 
interest in the profits of business, to this extent, — 
that unless profits, in the long-run and on the aver- 
age, are such that the business man can afford to 
pay the usual rate of interest, the compensation of 
the capitalist, or his share in the general distribu- 
tion, must be reduced. 



PROFITS. 313 

On the other hand, to the employer, in whatever 
department of business, the question of profits is 
vital. His success depends upon the amount he can 
secure, after meeting all his necessary expenditures 
for labor, rent, interest, taxes, insurance, bad debts, 
etc. 

It often happens that the employer (manufacturer, 
merchant, etc.) is the owner, in whole or in part, of 
the capital used. This in no wise alters the case; 
for then he receives income both for his capital and 
his labor, or efforts. He saves all the interest he 
would otherwise pay to the capitalist ; he pays in- 
terest to himself. He may own the buildings he 
occupies; and in so far he is a capitalist, paying 
rent to himself. 

It is, then, by this triple alliance of enterprise, 
capital, and labor that all production is effected ; 
and between them, in the final result, it should be 
shared. The economical question is, How shall an 
equitable division be attained ? 

"We have previously said, in relation to capital 
and labor, that there must be a just proportion of 
each to the most efficient production, — sufficient 
labor for the capital, and capital for the labor: so 
there must be sufficient enterprise, business talent, 
and tact to use both; and the several parties must 
be left to act voluntarily, under the instincts of hu- 
man nature and the laws of value. Indeed, the great 
difference in the wealth of nations is made by the 
business class: mind is more effective than muscle. 

With perfect equality and freedom of action, each 
will certainly obtain the share that belongs to him.' 
Laws in regard to this, as all other property rela- 

21 



314 



DISTRIBUTION. 



tions, are not needed to direct human industry, but 
to control human passion; to prevent one party from 
trespassing upon the rights of the other. 

It has been common to speak of the profits of 
capital, instead of the profits of business. This is 
a mistake which confounds necessary distinctions. 
The profits of trade, or business, are to be reckoned 
upon the amount transacted, not upon the capital em- 
ployed. The difference between the two modes is 
often very great. 

We give the following table as an illustration of 
what we mean: 

Difference of Profits as computed on the Capital employed or the 
Business transacted. 



Capital 
employed. 


Sales. 


Rate of Pro- 
fits on Sales. 


Gross 

Profits. 


Ex- 
penses, 
includ- 
ing In- 
terest. 


Net 

Proats. 


Net Profits, 
if reckoned 
on Capital. 


Net Profits, 

if reckoned 

on Business 

done. 


$100,000 
20,000 
10,000 
50,000 


$500,000 
150,000 
30,000 
350,000 


15 per cent. 

10 " " 

30 " " 

5 " " 


$75,000 
15,000 
9,000 
17,500 


$25,000 
7,500 
2,000 
7,500 


$50,000 
7.500 
7,000 
10,000 


50 per cent. 
37^" " 
70 " " 
20 " " 


10 per cent. 
5 " " 

26%" " 
2^" " 



The actual transactions of business present an 
endless variety, of which the above may be taken 
as samples. 

The object aimed at by the business man is to 
obtain as large a net profit as possible, irrespective 
of the per centum of the profit on the capital 
employed. 



RATE OF PROFITS. 



There is a constant tendency, in the progress of 
society, to a decline in the rate of profits; i.e. as 
has just been said, of profits upon business done. 



PROFITS. 315 

1st. From the acceleration of exchanges, or the 
rapidity with which capital is used; in consequence 
of which, the same absolute remuneration can be 
obtained with less charge on each transaction. 

2d. From the increasing number of those who, 
by education and training, are qualified for inde- 
pendent business. 

3d. From increasing facilities for intercourse by 
steam, on land and sea, and the consequent diffusion 
of intelligence in regard to prices and markets. 

The rate of profit can never be arbitrarily fixed 
where there is free competition, any more than the 
wages of labor; yet in a given country, or mart of 
trade, there may be an actual average rate which all 
individuals strive to attain ; say, for example, ten 
per cent. As a matter of fact, each individual ob- 
tains all he can. He does this, especially in places 
of large trade, by charging as much advance on 
every article as he finds it will bear. If his rate is 
too high, his custom will fall off; or, if he has cus- 
tomers, they w r ill be of a hazardous class, by whose 
delinquencies he will lose more than he can gain by 
their patronage. Then, again, it is practically 
true, that scarce any two commodities pay the same 
rate of profit; some, it may be, only two, some ten, 
some twenty per cent. And, further, while in the 
same street one man sells his goods at ten per cent., 
another is selling at seven and a half per cent., and 
is making a larger amount of net profits at that. 
Why is this ? 

First The latter buys more shrewdly ; secondly, 
he carries on his business more by his own efforts, 
and with less expense ; and, lastly, sells, as he will 



816 DISTRIBUTION. 

be likely to do, to reliable men, who most certainly 
discover where they can purchase to the greatest 
advantage. 

RAPIDITY OF EXCHANGE. 

The necessary rate of profit depends greatly on the 
rapidity of sales, as compared with the capital em- 
ployed and the expense of conducting business. 

Large sales, with small profits, or a rapid turning 
of capital, is the natural tendency of trade, as popu- 
lation and wealth increase, and especially as credits 
are diminished. Those who sell for cash have im- 
mensely the advantage of those who give long 
credits, particularly under a mixed currency, which 
so largely increases the hazards of trade. 

In those communities in which the people are 
generally poor, and their wants great and pressing, 
as in newly-settled countries, credits are naturally 
much extended, and, of course, the rate of profits 
proportionally increased. This is known to be the 
case over a large part of our Western States. The 
people can afford to pay large profits, if by so doing 
they can get the use of capital, because capital pro- 
duces so large a return; as, for example, one thou- 
sand dollars invested in the spring in ploughing the 
prairie, and getting in a crop of wheat, will, not un- 
likely, give a net profit, within six months, of one 
hundred per cent. But when such communities 
accumulate capital, and are able to pay as they pur- 
chase, they come to buy at greatly reduced rates, 
and profits fall to the minimum. The average rate 
of profits in a country is determined by the same 



PROFITS. 317 

Profits are merely wages received by 
the employer. This idea should be kept constantly in 
mind. 

If there are more laborers than are wanted, wages 
fall ; if fewer, they advance: just so with employers, 
or business undertakers. If there are too many 
competing for profits, the rate will fall until the 
excess is driven back into the ranks of labor. As 
there are, however, comparatively few, in proportion 
to the whole number of persons capable of labor, 
who have the requisite capacity and training re- 
quired for transacting business successfully, and 
fewer still who can command the necessary means 
or capital, it will follow that the rewards of the em- 
ployer will be larger than those of the persons em- 
ployed. But we must not forget that this difference 
is less than at first appears, because our observation 
shows us that, of all who undertake to trade or 
manufacture, a large majority become bankrupts; 
and, consequently, the average difference between 
the employer and the employed is greatly reduced. 

There is, undoubtedly, a constant tendency to an 
equalization and reduction of profits from continual 
improvements in the means of locomotion, and the 
increasing intelligence of the people. The opening 
of railroads has wrought a revolution in this par- 
ticular. These not only greatly reduce the cost of 
transportation, but the average rate of profits. 



318 DISTRIBUTION. 



DIVIDENDS. 



A large share of the income received by owners 
of capital, at the present day, comes in the form of 
dividends on stock, held in corporations and joint- 
stock companies, formed for almost every conceiv- 
able purpose. The introduction of railroads has 
caused immense investments, the income from which 
is received in dividends. How are these to be 
classed ? They cannot be regarded as synonymous 
with interest, or rent: they must be considered as 
profits. They are received for the profits of busi- 
ness done by proxy. The capitalist may not have 
the slightest agency in the affairs of the company 
from which he gets an income ; still, he is a partner, 
though a limited and silent one, and receives his 
share of the profit or loss. 

It may be objected, that bank dividends must 
surely be classed with interest, since they are made 
up wholly of interest received for the loan of capital. 
This is not strictly correct. No inconsiderable 
share of profit to the banks of the United States is 
derived from the premiums charged for exchange. 
American banks are exchange-brokers. Besides, 
nearly one-half of all the income of mixed-currency 
banks is derived from the manufacture of currency, 
not the loaning of money or capital. Although divi- 
dends of his kind approach nearer to interest than 
those of ordinary business corporations, still they 
are most properly classed with profits. 



INTEREST. 319 



CHAPTER VI. 

INTEREST. 

What is paid for the use of money, or any 
other form of loanable capital, is called "interest." 
Hence the term " usury." 

Interest has its justification in the right of prop- 
erty. If a man can claim the ownership of any 
kind of wealth, he is the owner of all it fairly pro- 
duces. Past labor has all the sacredness of present 
labor, and as justly claims its reward. An associate 
in production, it is entitled to a share in the prod- 
uct. Whoever by labor produces wealth, and by 
self-denial preserves it, should be allowed all the 
benefit that wealth can render in future production. 
This is the only condition upon which the largest 
accumulation of wealth can be secured ; it presents 
the only motive that can withstand the impulse to 
immediate gratification. The desire to gain and 
the desire to spend are both in human nature, and 
are conflicting passions. What one takes, the othei 
must relinquish. If, therefore, the desire to spend 
is unchecked, all wealth and physical well-being dis- 
appear in riot and wastefulness. There is the further 
consideration, that, since to loan capital is to incur 
risk, that risk should be compensated. It has been 
a favorite idea with many visionary writers, that 
interest can be entirely done away with. Proudhon 
and others have speculated and theorized much on 



320 DISTRIBUTION. 

this subject; but nothing can be more idle. We 
can no more get rid of interest than value: both are 
in the laws of nature. Yet this has been, in the 
view of many, the philosopher's stone, that was to 
transmute all baser metals into gold. It is akin to 
the idea that credit can be made to take the place 
of value, and is sustained by the same sort of reason- 
ing as that "property is a crime; a monopoly that 
must be destroyed." 

We will notice briefly a few of the main princi- 
ples that govern the rate of interest the world over. 

1st. Interest, in its general rate, will be determined 
by the productiveness of labor in the community 
where it is employed. It is evident the reward of 
capital cannot be larger than the total profits of busi- 
ness, because it would no longer be used; nor can 
it be equal to these profits, for no one would be dis- 
posed to employ it and pay out his whole profits for 
its use. Interest must, therefore, be less than the 
aggregate amount of the returns of production; and 
finding, as it does, a competitor in present labor, 
capital will be obliged to submit to an equitable 
division. 

USURY LAWS. 

2d. Interest will be governed by the law of sup- 
ply and demand. This is so evident as not to require 
argument or proof, hardly illustration. Old coun- 
tries abound in accumulations of capital. Interest is 
there found cheap. In all new countries, there is a 
youthfulness of capital ; there has not been time to 
develop the powers of production; and hence inter- 
est is high. The United States of America afford a 






INTEREST. 321 

most striking example in point. There is a vast 
amount of uncultivated but fertile land, while the 
amount of capital with which to cultivate it is com- 
paratively small. So of its manufacturing capacities. 
* Hence there is a his;h general rate of interest. This 
I is governed by the supply and demand, i.e. by the 
laws of value alone, and should never be interfered 
with by legal enactments. 

This is a lesson mankind have been slow to learn ; 
yet the most commercial nation in the world (Great 
Britain) has abolished all usury laws. The experi- 
ment was at first made with great caution, limiting 
the exemption to a particular kind of paper, and the 
time in which it should operate to a few months; 
but it was found so perfectly satisfactory to the 
community, that, after a fair trial, the abolition of 
the usury laws was made final and complete. 

But, upon a question so much in dispute, it may 
* be desirable to give the principal reasons why the 
matter of interest should not be interfered with by 
law.** 

(a) When it is made a penal offence to take over a 
certain per cent, interest, if money is worth more, as 
it often will be, it will be obtained by some indirect 
process. Most persons do not like to directly violate 
a law, however foolish or unjust they may deem it 
to be ; consequently, they will attempt to evade it. 
There is no difficulty in this. A note may be sold 
to a broker for what it will bring; and the broker 
buys it with funds furnished by the capitalist, who 
stands behind the curtain while the borrower pays 
the broker for getting the money he might otherwise 
have obtained directly of the capitalist "himself. The 



322 DISTRIBUTION. 

law has not prevented the usury, only increased the 
rate. The broker feels no responsibility; for he is 
only an agent between the parties. The capitalist 
has no scruples; for he is not known in the trans- 
action. Instead of this, the borrower and lender 
should be brought face to face, in an open market, 
where each could be protected by law in the trans- 
action; and then a fair, unrestricted competition 
would assure the lowest rate of interest, obtained 
most economically. 

But for usury laws, the current rate of interest 
would be as well known as the price of stocks or 
corn or wool,- and would, like them, be determined 
by the laws of trade ; and men would act as intelli- 
gently and as freely as in the purchase of merchan- 
dise. Freedom is as essential in the disposal of 
money as in the intercourse of nations. 

(b) Usury laws create an injurious distinction be- 
tween different kinds of mercantile paper, and thus 
occasion embarrassment and loss to borrowers. 

For example, the law says in some States that 
only six or seven per cent, interest shall be taken 
by the banks. But money may be worth twelve 
per cent. ; and there are ten applications for it, at 
that rate, to one that can be supplied. What is the 
result? Why, the bank will make no loans except 
upon such paper as it can charge with exchange. 
Exchange is legal, whether it is real or fictitious. 
A and B apply for discount at a bank in Boston. 
A offers notes of the most undoubted character, 
payable in Boston ; B offers notes or drafts payable 
in New York, and he gets accommodated. His 
drafts have sixty days to run ; he is charged one 



INTEREST* 323 

per cent, exchange, and thus pays twelve per cent, 
interest. A, having only notes on which no such 
exchange can be legally charged, must " go into the 
street," and employ a broker to sell the notes for 
him at the best rates he can. 

(c) Usury laws are the principal cause of compul- 
sory deposits, or deposits made to secure large dis- 
counts. These are, as we have shown, exceedingly 
burdensome to the business community, and most 
dangerous to the currency. If the rate of interest, 
as at the Bank of England, was left entirely to the 
state of the money market, these deposits, now 
peculiar to American banking, would disappear. 

3d. Interest will be influenced largely by the safety 
or hazard of capital. This will depend, — 

(a) Upon the moral character of the people, 
whether essentially honest or dishonest, whether 
honorable or dishonorable, whether industrious, 
frugal, and temperate, or otherwise. 

(b) Upon the general thrift of the community; 
for however well disposed to pay, if decay and de- 
cline are general, the hazards of capital must be 
greatly increased. It must share in the general 
losses of business. 

(c) Upon the justice and efficiency of the laws by 
which the rights of property are secured, and the 
obligation of contracts enforced. This, as can 
readily be seen, is one of the most important con- 
siderations in regard to the safety of loans; and, of 
course, the rate of compensation in the shape of 
interest. 

4th. Again, the uniformity of the rate of interest, 
and its general average, will depend, other things 



824 DISTRIBUTION. 

equal, upon the soundness of the currency. If it 
consists wholly of value, — that is, if the credit ele- 
ment constitutes no part of the circulating, medium 
or standard of value, — the rate of interest will be 
as uniform and as low as the laws of trade admit. 
The rate can never be absolutely fixed at one point; 
yet, where no credit is used as currency, the credits 
of the country will be so based upon values that the 
vacillations will be very moderate. They were very 
slight in Europe until within the last thirty years ; 
that is, until the general introduction of credit cur- 
rency. 

Under a currency in which credit is the principal 
element, the fluctuations in interest are in propor- 
tion to the extent of that element; because, as we 
have shown, a mixed currency, whenever there is 
any panic or distress for money, withdraws from cir- 
culation with a rapidity proportionate to its weak- 
ness, or want of value. Hence the frightful revul- 
sions we have witnessed. 

A legal rate of interest should be established by 
law, in all cases where the parties have not them- 
selves agreed upon one, so that, in the absence of all 
agreement or contract, a given rate may be awarded. 
This legal rate would probably be the general aver- 
age obtained for the use of money. 



RENT. 325 



CHAPTER VII. 

RENT. 

Rent is paid for the use of land and its append- 
ages, which together are called "real estate/' The 
question of the rent of land is of much less practical 
importance in the United States than in Europe, 
since it is here generally held in fee simple by those 
who cultivate it. Yet, as an economic question, it 
deserves consideration. And there is an especial in- 
ducement, since we certainly have in this country 
the best opportunity to investigate, in their simple 
primitive form, all the phenomena connected with 
it. Constantly entering upon new lands, we have 
exhibited for our observation the working-out of 
problems which long puzzled the philosophers of 
the old world. 

1st. Rent implies ownership, since no one would 
pay for the use of that to which all had an equal 
title. This may be called the first condition. 

2d. It implies society, so that more than one per- 
son shall desire the use of the same land or append- 
ages. If exchange, as M. Bastiat says, "is civiliza- 
tion, 5 ' rent is society. This is the second condition. 

From our definition, it will appear that rent- is 
paid (a) for land, (6) for whatever is added to its 
value or desirableness. We cannot separate the two 
considerations, nor would it be of practical utility 
if we could ; as, from what we have already en- 

28 



326 DISTRIBUTION. 

deavored to show, value is not derived from the gifts 
of nature, but the labor of man : " land, water, steam, 
electricity, and the like, confer no value." 

Land may be said to be the foundation of rent; 
and, since the rightfulness of appropriating it has 
been disputed, it may be proper to remark that we 
deem it a sufficient answer, that appropriation is 
indispensable to the production and accumulation 
of wealth, to the progress of civilization, and the 
welfare of the human race : therefore it is right. 

Man, in his original or savage state, is a hunter. 
He needs no appropriation of land; for he roams at 
large through the forest. He accumulates little or 
nothing; and it is of small importance where he 
builds his temporary cabin. 

Nor in the second or nomadic condition, when 
man becomes a shepherd, does rent make its appear- 
ance. His business is no longer mere destruction, 
but preservation and use. This elevates his condi- 
tion ; the employment has a far more ennobling 
effect upon character; higher faculties and better 
feelings are developed. In the natural progress 
of events, he becomes an agriculturist His chief 
business now is to till the ground. How can he do 
this without preparation of the soil from which he 
is to draw his sustenance? And why should he do 
this, if another may at will dispossess him of his 
labors ? The land must be divided, appropriated, 
and held by some tenure that can be relied upon; 
and, w T heu this takes place, rent makes its appear- 
ance, and increases in intensity as man becomes 
more and more advanced in social condition ; for 
with agriculture come the mechanic arts, manufae- 



RENT. 



827 



tures, commerce, villages, towns, cities, — civiliza- 
tion. 

We now come to the elements which enter into 
the rental of land. 

1st. Location. — This grows out of the social con- 
dition of man, to which w r e have alluded. If men 
lived as isolate beings, and there were land enough 
for all, and the whole equally fertile, there would be 
no rent ; but, once gathered into villages and com- 
munities, rent would make its appearance, although 
there were as much land as all desired, and each part 
equally productive. 

This point we shall endeavor to make plain by 
an illustration. A colony of thirteen families settles 
along the shore, where all the land is unclaimed, 
and immigrants have only to choose where and how 
much they will occupy. We will suppose the land 
all equally fertile, agreeable, and accessible. In point 
of fact, there shall be no natural difference between 
one lot of one hundred and sixty acres (what each 
family desires) and another; absolutely no. choice 
arising from anything appertaining to the land. 
They accordingly lay out thirteen lots half a mile 
square. This allotment and location upon the shore 
we represent as follows : 



1 


2 


3 


4 


5 


6 


7* 


8 


9 


10 


11 


12 


13 



In this arrangement, it will be seen, the lots com- 
mencing on the left are numbered 1 to 13. No. 7 
is, of course, the middle lot. 

Now, all being equally eligible, the land equally 
accessible and good, and there being as many lots 



328 DISTRIBUTION. 

as settlers, and each as large as any one desires, will 
there be any value to them ? Yes : because all will 
prefer No. 7, for they perceive that it is most de- 
sirable, inasmuch as it is central; and, if public 
buildings are erected for the accommodation of all 
(school-house, church, etc), they must be placed on 
that lot. If a landing-place is made, or a warehouse 
put up, for the commerce of the settlement, it must 
be on No. 7; for the obvious reason that it is the 
point at which the whole population can most 
readily assemble, and it thus forms the natural 
centre of business. 

All this is so apparent, that each man prefers No. 
7; but only one can have it. What follows? It 
must be sold to the man who will give the most 
for it. Some one will give one hundred bushels of 
wheat, or its equivalent, — six bushels rent per an- 
num. All this does actually happen in every case 
of new settlement; not, indeed, in a manner always 
so distinct and striking as in the case we have 
supposed, but in principle as certain and absolute. 

If this is so, we have established the fact that, 
though all land were equally fertile, and there were 
enough for all, and all equally desirable in every 
other particular, yet that rent would arise from the 
social wants of man, which make mere location a 
circumstance affecting its value, and create a rental 
independent of all other considerations. 

2d. Difference of Fertility. — We will suppose four 
different tiers of land, of unequal fertility. The 
first will yield forty bushels of corn ; the second, 
with the same labor, thirty; the third, twenty; the 
fourth, ten. 



RENT. 329 

Now, while there was enough land of the first to 
produce all the corn wanted, nobody would give 
any rent for the first tier on account of its fertility; 
but when, by the increase of population, it became 
necessary to cultivate No. 2, which would only yield 
thirty, No. 1 would command a rental of ten bushels, 
because a man might as well give ten bushels rent 
for No. 1 as to cultivate No 2 without rent. 

When, again, necessity compelled the cultivation 
of No. 3, No. 2 would pay a rent of ten bushels, 
and No. 1 of twenty bushels. And further, when 
tier No. 4 must be brought under culture to pro- 
duce the quantity of corn needed for consumption, 
then, as it would with equal labor produce but ten 
bushels, No. 1 would yield a rent of thirty, No. 2 
of twenty, and No. 3 of ten ; while the last, or No. 
4, would afford no rent. 

3d. Population. — We will further suppose that 
from the increase of population, more corn is wanted 
than can be raised; and, consequently, importations 
are made at an increased price, — equal, say, to fifty 
per cent. Now if, for the sake of convenience, we 
take the price of corn to have been originally one 
dollar a bushel, and to have advanced to one dollar 
and fifty cents, it will come to pass that tier or 
quality No. 1 will have a rent of $45; No. 2, of 
$30; No. 3, of $20; and No. 4, which now for the 
first time produces rent, of $5. 

4th. Application of Capital to Land. — This is done 
in various ways, — by the use of fertilizing materials, 
drainage, deep ploughing, etc. For every such ap- 
pliance, wisely made, a rent is received, supposed to 
be equivalent to the expenditure incurred, 

28* 



330 DISTRIBUTION. 

And here it may be found that the same expen- 
diture, applied to the different qualities of land, 
produces unequal results. Five dollars, expended 
per annum on No. 1, may return but a profit or ad- 
ditional rent of eight dollars; while the same amount, 
applied to No. 2, will give seven dollars; or to No. 
3, will give six dollars, etc. 

This will cause a variation in the relative rentals 
of the different qualities or tiers of land we have 
supposed. 

LAND APPENDAGES. 

We have, thus far, noticed only the rent of land, 
without reference to what may be placed upon it 
for other purposes than direct production. 

We now come to speak of real estate, consisting 
of dwellings, stores, warehouses, and the like. 

When buildings are placed upon farms, they form 
a part of the preparations which are indispensable 
to agriculture; and, if erected with suitable refer- 
ence to economy, will add to the value of land as 
much as shall be equal to their fair annual rent. 
Farming cannot be carried on without buildings ; 
therefore, so far as buildings are absolutely neces- 
sary, they will command a rent as certainly as the 
land itself. This must be true; and yet all know 
that "improvements," as they are called, in the 
shape of buildings, seldom increase the value of 
farms in proportion to their cost. For example, if 
the land alone is worth three thousand dollars, and 
buildings are put up costing two thousand dollars, 
the whole will not, ordinarily, sell for five thousand 
dollars. Facts of this sort are observed everywhere. 



RENT. 331 

Farms may, as a general rule, be bought, especially 
in all the older States, at much less than their cost, 
after making all due allowances for depreciation of 
buildings, etc. We observe, first, that buildings are 
not generally put upon farms for the purpose of 
selling or letting them. They are almost invariably 
erected by the owners of the land, in order to create 
for themselves a home. To make that home pleas- 
ant and desirable, a dwelling is erected according to 
the tastes of the owner and his family, rather than 
the direct profit of the farm. 

Whenever, therefore, such farming properties 
must be sold, the purchaser will rarely, if ever, give 
more than a fraction of the original cost of the 
buildings. 

And, in the competition of cultivation in a com- 
munity like the United States, it is to be remem- 
bered that its agriculture is a unit; that the prod- 
ucts of the accessible and fertile prairies of the 
West are brought into the same markets as those 
of the hard and sterile hills of New England. And 
it is also to be taken into account, that a farm in 
Illinois, for example, with a productive power of 
five thousand bushels of corn, will probably not 
have upon it buildings worth more than one thou- 
sand dollars ; while on many Eastern farms, of a 
productive power of but two thousand bushels, the 
buildings may have cost three thousand dollars. 
Now, as these farms are, in fact, competing in the 
same general markets, it is clear that the ex- 
tra expenditures upon Eastern farms can pay but 
little, if any, rental, though they may be very pleas- 
ant to the occupant. 



332 DISTRIBUTION. 

It is on the same principle that the amount ex- 
pended in clearings, building walls around farms, 
and the like, do not, in the aggregate, return much 
rent or income, compared with their cost. They 
become, in the progress of years, to a considerable 
extent, like the gifts of nature, gratuitous. This is 
true of all countries, at all times. 

In cities, where the value of real estate consists 
principally of buildings, and improvements made 
upon the land, we find that the land itself feels the 
operation of the first cause of rent or value, viz., 
location, far more intensely than anywhere else. An 
acre of land, once of the value of fifty dollars for 
agriculture, becomes worth five hundred thousand 
dollars for city purposes. 

The absence of all restrictions upon the owner- 
ship and transfer of landed property and real estate, 
of all entails and mortmain holdings, makes the 
question of rent one of small practical importance. 
Where owning is the rule, and hiring the exception, 
rents regulate themselves; or, in other words, are 
governed entirely by the operation of the laws of 
value. They advance or recede with trade and 
population. 






TAXATION. 333 



CHAPTER VIII. 

TAXATION. — PRINCIPLES OF TAXATION. 

Since government, or social organization, is among 
the wants of man, as truly as food or clothing, we 
must recognize it in the science of political economy, 
and provide for it. Government implies functionaries 
and expenditures. How shall these be maintained? 
Evidently by the contributions of all, for all are in- 
terested. Government may, therefore, rightfully 
claim a share of all that labor and capital have 
created. The aggregate of all sums collected is 
called Revenue ; the system by which it is collected 
is called Taxation. 

Although the single object of taxation is to ob- 
tain a given amount of wealth (generally in the form 
of money), yet the modes by which that object may 
be secured are various. 

In ancient times, taxation was often imposed by 
the arbitrary fiat of the ruler, with little or no refer- 
ence to equity, or its effect on the prosperity and 
happiness of the people ; but, in modern civilization, 
it has come to be regarded as altogether the most 
difficult and delicate task government is called upon 
to perform. 

The question of taxation, in its various bearings, 
is now made the subject of examination and discus- 
sion in all legislative bodies ; and taxes are imposed, 
in all constitutional governments, not at the caprice 
of the ruler, but by the representatives of the people. 



/ 



334 DISTRIBUTION. 

If, then, the property of the citizen must be taken 
to meet the exigencies of government, it becomes 
highly important that those from whom it is taken 
should feel that it is equitably done. Nothing in 
relation to all the acts of government is more to be 
desired than that its mode of raising a revenue 
should be so wisely and economically arranged, so 
manifestly just and equal, and so well understood 
by all, that no opposition to its demands shall arise 
from a sense of oppression. 

In the distribution of wealth, as has been before 
stated, government makes a peremptory claim to so 
much as its necessities, real or supposed, may re- 
quire. 

This claim is not only peremptory, but prior to 
every other claim. The laborer must contribute a 
part of his wages; the business man of his profits; 
and the capitalist, of his interest, or rent. Every 
man knows, or should know, that when he creates 
any kind of wealth, a share of it belongs to govern- 
ment. He, in fact, creates a fund out of which 
government is to be supported. 

The paramount question, in regard to taxation, is, 
On what principles shall it be founded? Adam 
Smith, in his "Wealth of Nations/' written almost 
a century ago, laid down four maxims, or principles, 
which have been so generally concurred in from that 
day to this, that, as J. Stuart Mill says, "they have 
become classic." 

I. "The subjects of every state ought to contribute to the sup- 
port of the government, as nearly as possible, in proportion to 
their respective abilities; that is, in proportion to the revenue 
they enjoy under the protection of the state. In the observation 






TAXATION. 335 

or neglect of this maxim consists what is called the equality or 
inequality of taxation." 

We accept this proposition, and our first inquiry 
is, "What is meant by " subjects"? We answer, 
Every inhabitant, old or young, male or female. 
Women? Certainly: if they have a revenue or in- 
come, they are as justly bound to contribute to the 
government as men, and in the same proportion. 
Many women have large wealth: why should it go 
untaxed ? Children ? There are some such who 
are millionaires: why should they be exempt? 
Idiots, lunatics, cripples? Yes, if they have " rev- 
enues." Many such persons have large estates, 
which should contribute to the public treasury. It 
is not the ability to hear or see or walk that is taxed, 
but the income, or "revenue." 

We next notice the condition mentioned, "as 
nearly as possible." This implies that it may not 
be practicable to secure perfect equality; indeed, 
w T e know it is not, but such should be the aim of 
government. 

II. "The tax which each individual is bound to pay ought to 
be certain, and not arbitrary. The time of payment, the manner 
of payment, the quantity to be paid, ought to be clear and 'plain to 
the contributor, and every other person." 

(a) "Certain, and not arbitrary." By this, Dr. 
Smith evidently meant that the taxes should be 
assessed by competent authority, and upon fixed 
and well-known principles. 

(b) The time of payment should be "clear and 
plain." The citizen should know when he pays; be 
conscious of the fact that he is paying the govern- 
ment a certain sum at the time he actually does it. 



336 DISTRIBUTION. 

(c) "The manner and the quantity plain." This 
for the reasons just stated. He certainly ought to 
know in what manner he pays, and how much. 

(d) Should be known "to the contributor, and 
everybody else." In the method of taxation, the 
people are joint partners: what one does not pay, 
another must; hence the right of every man to 
know, not only what he pays himself, but what his 
neighbor pays. Otherwise, how can he judge 
whether he is overtaxed or not ? 

There is nothing, therefore, inquisitorial, or of 
the character of espionage, in any necessary inquiries 
in regard to individual property or income ; because 
it is what every tax-payer has a right to know, it is 
that without which a just distribution of the public 
burdens cannot be secured. 

It is on this account that the publication of tax- 
lists is a duty on the part of the taxing power. 
Then, if any property is omitted by accident or de- 
sign, it will probably be found out; for, being a 
copartner, each man is interested in the taxes of 
every other, and will or ought to give notice of any 
omission or incorrect valuation. 

III. " Every tax should be levied at the time, or in the man- 
ner, which is most likely to be convenient to the contributor to 
pay it." 

As, for example, when the harvest has been 
secured, and is ready for market; w 7 hen the fisher- 
man returns with his "fare," etc. This, though not 
a very important consideration, will readily be ad- 
mitted as proper. 



TAXATION. 337 

TV. " Every tax ought to be so contrived as to take out and 
keep out of the pockets of the people as little as possible, over 
and above what it brings into the treasury of the state." 

Although the soundness of this principle would 
seem indisputable, and will doubtless be theoreti- 
cally admitted by all, yet Dr. Smith proceeds to 
enumerate several modes in which the opposite 
result may be brought about. 

First. By levying the tax in such a manner that a 
great many officers will be required for its collection^ 
who will consume a great part of the produce of the 
tax. This will depend in great measure on the ma- 
chinery employed in collecting the public imposts. 

Second. By diverting a portion of the labor of a 
community from a more to a less profitable employ- 
ment. For example, so heavy a tax might be laid 
on carriages as to reduce their use or consumption 
to such an extent that the manufacturer might be 
compelled to go into some other business less pro- 
ductive. This has often been done by unwise legis- 
lation. 

Third. By attaching such heavy duties as to occa- 
sion smuggling, and thus create a multitude of 
officers to guard the revenue. 

Fourth. By subjecting the people to frequent and 
inquisitorial visits, and interruptions in the pursuit 
of business and in their domestic affairs, thus caus- 
ing annoyance and dissatisfaction. 

We now add still another principle, which, though 
not among those laid down by Dr. Smith, has been 
adopted in every country having any considerable 
taxation: 

29 



338 DISTRIBUTION. 

V. The heaviest taxes should be imposed on those commodities, 
the consumption of which is especially prejudicial to the interests 
of the people. 

Having stated the maxims or principles which 
should govern the imposition of taxes, we now 
come to consider the different forms of taxation 
which have been adopted, and, to a great extent, 
are still in use, by the different governments of the 
world, in order to ascertain in how far they conform 
to principles universally admitted as correct. 



FORMS OF AMERICAN TAXATION. 

Preliminary to an examination of the different 
modes of taxation, it may be proper to say that 
there are, in the United States, two general systems; 
viz., by national and by State authority. The na- 
tional government has a mixed system, imposing 
taxes in every form, direct and indirect, except upon 
the poll. The State governments generally rely 
upon direct taxation ; and the poll-tax is often one 
of the forms adopted. 

Under State authority, counties, cities, towns, and 
school-districts impose taxes; so, also, parishes and 
religious corporations: but the latter, generally, 
only on voluntary membership. 

Taxes may first be divided into two kinds, — direct 
and indirect A direct tax is demanded of the per- 
son who it is intended shall pay it. Indirect taxes 
are demanded from one person, in the expectation 
that he will indemnify himself at the expense of 
others. Such are customs and excise. 

In our further examination of the subject, we 



NATIONAL TAXATION. 339 

shall refer to the national taxation of the United 
States, and the State taxation of Massachusetts ; 
selecting the latter State only for being the most 
convenient, and as representing that of the indi- 
vidual States generally with considerable exactness. 



CHAPTER IX. 

NATIONAL TAXATION. — I. CUSTOMS. 

These are taxes upon importations, and collected 
through the custom-houses. Government establishes 
a tariff; that is, a list of duties upon such articles 
as it deems best: these are paid by the importer 
before he can get possession of his goods. 

Duties are generally of two kinds, — specific and 
ad-valorem. Specific duties are imposed by the pound, 
yard, gallon, etc. Ad-valorem duties, as the term im- 
ports, are charged upon the value of the goods, as 
twenty per cent, upon an invoice of silks, hardware, 
sugar, etc. 

In some of the American tariffs, the specific prin- 
ciple has predominated; in others, the ad-valorem. 
There has always been a struggle when the tariff 
was to be changed ; those desiring protection being 
in favor of specific, those of the opposite views con- 
tending generally for ad-valorem duties. Hence much 
conflicting legislation. 

There are difficulties attending both. If specific 
duties are laid, they operate with great inequality. 



340 DISTRIBUTION. 

For example, suppose a duty of twenty-five cents 
per pound upon tea. This would be equal to a 
taxation of one hundred per cent, on that which 
cost, originally, twenty-five cents, which the poor 
man must consume; while the rich, who would pur- 
chase tea that cost seventy-five cents, would pay but 
one-third as much per cent as the former. 

In regard to ad-valorem duties, the practical diffi- 
culty has been, when the rates were very high, to 
prevent fraudulent invoices. For example, the im- 
porter must present his original invoice at the 
custom-house, and make oath to its correctness. If 
dishonest, he may, by connivance with the shipper, 
furnish false papers, showing the cost to be much 
less than it really was. 

Of all modes of raising a revenue, that by customs 
is confessedly the most effective, and the most 
readily accomplished ; and its great importance, as 
one of the chief sources of national revenue, de- 
mands that we give it a careful consideration. 

1. The first principle we laid down was "that all 
should contribute, as nearly as possible, in propor- 
tion to their respective abilities." 

As all duties are laid upon articles of general 
consumption, it will at once be seen that such taxa- 
tion cannot have an equal bearing, because men are 
thus taxed in proportion to what they consume, not 
in proportion to their wealth. The poor man, with 
a large family, may pay more than a millionaire. 
Men are taxed in this way according to the mouths 
they have to feed, and the bodies they have to clothe. 

2. In the second place, we inquire, Is "the time 
and manner plain to the person who pays" this 



NATIONAL TAXATION. 341 

indirect tax? The farmer who purchases a car- 
riage, — is he aware that he is paying a government 
tax by so doing ? If so, does he know how much 
he is paying? Does he understand that all the 
materials have paid duties to government ; that the 
linings, trimmings, and ornaments, the paints and 
varnish, and the tools with which it was made, have 
all been taxed ; and that he is to pay the sum total 
with customary profits on the whole ? Even if so, 
can he or any one else easily compute the amount 
of taxation which enters into the carriage ? So of 
all commodities which have passed through the cus- 
tom-house: people seldom realize when or how 
much they are taxed. Then the second principle 
we have laid down is violated. 

3. But we shall not have a full view of the opera- 
tion of duties on foreign merchandise, unless we 
take into consideration the fact that they raise the 
price of the home product, if there is one, to an 
equal degree with the foreign article, and, in that 
way, largely increase the burdens of the people, 
without adding to the public revenue. Suppose, 
for example, that the whole of a given commodity 
consumed in the country is 20 millions, of which 
5 millions are imported, and the balance produced 
at home. Suppose, farther, that the duty upon the 
imported article is forty per cent., equal in the 
aggregate to 2 million dollars. The home pro- 
duct must of course be raised in price to the extent 
of the duty on the foreign article, and the amount 
being 15 millions, is raised forty per cent. To 
ascertain the net amount of the latter, we take a 
sum to which, if forty per cent, be added, we find 

29* 



342 DISTRIBUTION. 

the total to be 15 millions. That sum is $10,714,286. 
Deduct this last from $15,000,000, and we have 
$4,285,714 as the difference, or enhanced price, the 
people have to pay on the home product ; and the 
matter stands thus: 

Duties upon imported articles $2,000,000 

Enhanced cost of the home article 4,285,714 

$6,285,714 
Of this amount the government gets 2,000,000 

And the tax upon consumers $4,285,000 

That is, the latter have paid three times as much 
as the public treasury has received. 

Practically, under our present tariff (1871), the 
people pay in some instances a much greater differ- 
ence than here presented. 

It is apparent, from this illustration, that the real 
taxation of a people will depend very much upon 
the proportion of duties which, designedly or not, 
are positively protective. On the other hand, if we 
suppose that the forty per cent, duty were laid 
upon tea or any other article not produced at home, 
the government would get the whole amount paid, 
the people saving upon every 20 millions consumed 
more than four million dollars. We omit here in 
both cases all reference to profits paid on duties. 

Such is the wide difference betwen duties imposed 
for revenue and those laid for the advantage of home 
productions. 



NATIONAL TAXATION. 343 



CUSTOMS AN EXPENSIVE MODE OF TAXATION. 

But, setting aside all consideration of the addi- 
tional burden of taxation occasioned by 'protection, 
as just illustrated, we find this system is entirely at 
variance with our fourth maxim, which was "that 
no more should be taken or kept out of the pockets of the 
people than absolutely necessary " This will be seen by 
the following illustration: 

The whole amount of dutiable merchandise con- 
sumed in the financial year 1871 was $518,759,518, 
upon which the duties were $202,446,473. Upon 
these duties the importers charged their profits as 
much as upon the original cost, also the jobbers and 
retailers. The cost of collection we estimate at six 
per cent; though including all salaries, charges, and 
interest in government investments, in custom- 
houses, etc., the expense is doubtless much greater. 
The matter will then stand thus: 

Whole amount of duties $202,446,473 

Importers' profits 12} per cent 25,305,810 

227,752,283 
Jobbers' profits 7} per cent 17,081,421 

244,833,704 
Retailers' profits 15 per cent. *. 30,875,051 

Paid by consumers 281,708,755 

[Received by government 202,446,473 

Extra charge on the people $79,262,282 

Or thirty-nine per cent, over the gross amount re- 
ceived by the national treasury, and forty-five per 
cent, over the net amount after deducting expenses 



344 DISTRIBUTION. 

of collection. The estimate of profits is at a low 
figure, less, probably, than the actual fact. 

In regard to customs duties, then, we cannot but 
conclude that, while they are a convenient and pro- 
lific source of revenue, they are very unequal and 
expensive, and little in accordance with the princi- 
ples of justice and equality. 

BOUNTIES. 

At this point it may be most proper to speak of 
the effect of bounties. If a home product is to be en- 
couraged by government, it is desirable that it should 
be done as economically as possible, or in such a 
manner as to impose the least taxation and loss upon 
the public, while it shall be as effective as possible 
in securing the object. It should therefore be accom- 
plished by direct bounties, by paying so many dol- 
lars per ton on all ships built in the country ; so 
many dollars per ton on all iron produced at home, 
etc. By this arrangement the people would pay only 
the net amount of the actual contribution, while in 
the form of duties it has been shown that they may 
and often do pay three or four times as much. 

Bounties, as a means of protection, have been but 
little resorted to by governments. The reason is 
obvious. The evident injustice of giving to one 
class of men a premium upon their productions, in 
order that they may be encouraged in a branch of 
industry that cannot live without contributions from 
the public treasury, is so apparent, and evidently un- 
reasonable and unwise, that the people of no coun- 
try would long tolerate it. It is, therefore, vastly 



NATIONAL TAXATION. 345 

more feasible to give protection by duties on the 
foreign article, although far more wasteful and 
onerous. 

EXCISE. 

Excise are the opposite of custom-house duties, 
being laid wholly upon articles of domestic produc- 
tion, and paid first by the producer; and, after the 
articles have passed through the hands of the mer- 
chants, with their profits added, the sum total is 
paid by the consumers. 

This mode of taxation is obnoxious to somewhat 
the same objections that may be made to customs. 
Excise is unequal, because falling on rich and poor 
alike; not in proportion to their wealth, but what 
they consume. The merchants' profits are not quite 
so large on these as on custom duties, because home 
products do not ordinarily pass through as many 
hands as foreign merchandise. The expense of col- 
lection, though only perhaps about half as great, is 
still a heavy charge upon the treasury. It is, not- 
withstanding, a very productive source of revenue, 
and must be resorted to by governments heavily in- 
debted. Domestic manufacturers are not injured 
by excise duties, unless they so increase the co3t of 
their commodities as to expose them to foreign com- 
petition. Profits upon such duties are charged upon 
commodities as a part of the general expense of 
their production. 



346 DISTRIBUTION*. 



TAXES ON DISADVANTAGEOUS CONSUMPTION. 

The principle has everywhere been acted upon by 
governments that heavy taxes are to be laid on com- 
modities " the consumption of which is especially 
prejudicial to the interests of the people." This is 
in accordance with our fifth maxim. 

There are two strong and sensible arguments in 
favor of this kind of taxation. One is that if it 
should cause a falling-oif in the consumption of the 
articles so taxed, no detriment would come to indi- 
viduals or the public; but, on the other hand, their 
moral and social condition would be promoted, and 
the power of production increased. 

The other consideration is, that all those who 
choose to abstain, as they can do without injury, 
from the specially taxed articles, will avoid the pay- 
ment of the tax altogether. Such taxes are volun- 
tarily assumed by those who pay them. This kind 
of taxation is found to be far more productive, in 
proportion, than any other, and consumption is less 
affected by heavy imposts. 

The amount raised from liquors and tobacco in 
Great Britain for the year ending March 31, 1871, 
was as follows : 



Spirits, customs £4,419,390 

Tobacco « 6,613,608 

Wine « . • 1,584,177 

Malt, excise 6,978,370 

Spirits, " 11,463,899 

£31,059,504 

equal to over $155,000,000. 



NATIONAL TAXATION. 347 

To this may be added a large part of the amount 
received for licenses, <£3,728,769, or $18,500,000. 

The amount raised in the United States in 1871 
was: 

From spirits $46,281,848.00 

From tobacco 33,578,907.18 

Fermented liquors 7,389,501.82 

Total $87,250,257.10 

The British duty on spirits is ten shillings, or 
$2.50, per gallon, that of the United States, 50 cents. 

When the system of war taxation was inaugu- 
rated, $2 per gallon was laid upon whisky. This 
was a very unwise procedure. Had only 50 cents 
been imposed at first, there would have been but 
little illicit distilling, and the government would 
have collected its dues. Having done this, the tax 
might have been increased ten per cent, per annum 
until it rose to one dollar or one dollar and fifty 
cents per gallon. One-half of the necessary revenue 
of the nation might, and for the good of the people 
ought, to be raised from this source alone, — say 150 
millions at least. 

STAMPS. 

There is still another mode of supplying the treas- 
ury, viz., by the sale of stamps. This is an impor- 
tant branch of the public revenue in all highly-taxed 
communities. Stamps are required upon all letters, 
newspapers, and other matter carried through the 
mails; upon all bills of merchandise and bills of 
lading; upon legal instruments of every name and 
nature ; upon patent medicines, etc. 



348 DISTRIBUTION. 

This is cheap and efficient, and as desirable as 
any form of indirect taxation. Of course it bears un- 
equally upon different classes, and is more or less 
vexatious, particularly when first introduced ; but 
habit will, after awhile, reconcile the people to it, 
and it is as little likely to be resisted or evaded as 
any other form of exaction. It is also collected with 
very little expense, as no functionaries are necessary. 
It should therefore be carried out as far as practi- 
cable. The British government raises a large sum 
in this way ; eight millions sterling are received for 
stamps. The United States treasury received, for the 
year ending June 30, 1870, the sum of $16,544,043. 

LICENSES, OR SPECIAL TAXES. 

These are granted by both national and State au- 
thority, for a great variety of purposes. It is a 
more economical and convenient mode of raising a 
revenue than by excise on manufactures, etc., re- 
quiring only annual renewal. There is also less op- 
portunity for fraud and evasion. It is therefore a 
very desirable form of taxation ; and the United 
States government has already availed itself of this 
mode of raising revenue, to the extent of $9,620,960 
for the financial year 1870, and this sum may doubt- 
less be greatly increased in the future. 



NATIONAL TAXATION. 349 



CHAPTER X. 

NATIONAL TAXATION (continued). — INCOME TAX. 

This tax is in perfect accordance with the first 
maxim laid down by Adam Smith, that " every man 
should be taxed according to the revenue he derives 
under the state," and also consistent with every 
other principle we have stated. It is " clear and 
plain" to the contributor and every other person. 
The income-tax payer knows when and how much 
he pays; and it can be collected conveniently and 
economically. 

This kind of tax was established in England in 
1798, during the wars with Napoleon, but was abol- 
ished soon after the close of that struggle. About 
1842, however, the government, finding its revenues 
fall short of the expenditures, restored the tax ; and 
it has been continued to the present time. 

This tax was first collected in the United States in 
1863, and amounted to nearly three millions; in 1864, 
to 20 millions; in 1865, to 32 millions; in 1866, to 
72 millions; in 1867, to 66 millions; in 1868, to 41 
millions; in 1869, to 34 millions ; in 1870 to 37 mil- 
lions. 

The above included the income tax upon banks, 
railroads, insurance companies, etc. The tax upon 
personal incomes over 1000 dollars yielded, in 1868, 
32 millions, 1869, 25 millions; in 1870,27 millions. 

30 



350 DISTRIBUTION. 

The amount exempted was raised from 1000 to 2000 
dollars, and the tax has fallen off largely, and will 
probably be allowed to terminate with the year 1872, 
as it will expire at that time. 

Yet of all modes of taxation, this is the most just 
and equitable. Every man can afford to pay accord- 
ing to his income, and ought to do so. There is no 
other perfect standard of taxation ; none other which 
does not inflict more or less hardship and injustice. 

The tax comes upon the annual private revenue 
of each year, out of which the government should 
receive its share for the annual revenue of the state. 
If the private revenue is increased, so should be the 
contribution to the public revenue; if the former is 
diminished, the latter should be also. This is fair 
and just. Were it to supersede all other forms of 
taxation, perfect equality would be established; 
property and labor would bear each its just share of 
the public burdens. To do this, it would be neces- 
sary to ascertain the income of every man ; of every 
laborer, whether his wages amounted to one hun- 
dred or one thousand dollars a year ; of every pro- 
fessional man ; of every operative, male or female ; 
every capitalist, banker, merchant, and mechanic. 
Upon the gross income, thus ascertained, the general 
tax should be levied, "pro rata. In this way each 
member of the community would be made to pay 
his just proportion, and, of course, would be obliged 
to save in his expenditures to that amount. 

The objection to this form of taxation is the diffi- 
culty of ascertaining what a person's income actu- 
ally is. In the first place, it is said that many do not 
know their affairs so as to be able to state their true 



NATIONAL TAXATION. 351 

income. There is doubtless much of truth in this ; 
but the very fact that such a tax is certain to be en- 
forced every year will, in a short time, remove this 
difficulty to a considerable extent, because men will 
be compelled so to keep their accounts as to know 
what they gain or lose. The operation of the law in 
this respect, therefore, is favorable to private inter- 
est ; since the more intelligent every man is in re- 
gard to his affairs, the better for him. Such, we 
believe, has been the operation of the income tax in 
England. 

Secondly. It is said that some men will be dishonest 
in their disclosures and statements, and therefore a 
correct result cannot be reached. 

That many men are dishonest there can be no 
doubt; but, when the law taxing incomes is regu- 
larly enforced from year to year, the difficulty of 
concealment, on the part of the tax-payer, is con- 
stantly increasing. His neighbors and competitors 
in business have an eye upon him, if they believe 
he is making false statements, and he cannot long 
escape detection. Besides, as a man may be put 
under oath (and, we think, ought always to be), the 
crime of perjury must be committed with every mis- 
representation of his affairs. The immense differ- 
ence between the reported incomes of the United 
States in 1864 and those of 1863, even after allow- 
ing for the genera] rise of prices, serves to give an 
idea of the advance that will naturally be made in 
the application of the income tax. 

The third objection made is that men do not 
always like to have their incomes known. But why 
should they not? We have already said that, in the 



352 DISTRIBUTION. 

matter of taxation, all are copartners, having a pro- 
rata interest. What one does not pay, others must. 
All, therefore, may rightfully demand such infor- 
mation as shall furnish the means of assessing a cor- 
rect tax. There is certainly nothing unreasonable 
in this. 

Estimated Income. — But it may be said that the 
income-tax principle would not work well in some 
communities, because a considerable share of its 
wealth produces no income, and therefore would go 
untaxed ; that this is especially so in the new States, 
where vast quantities of land are held which yield 
no rent or income whatever. 

But this is a mistaken view of the matter. If 
these lands are appreciating from year to year, — and, 
as a general fact, owing to the increase of popula- 
tion, they are, — the income from them is as real as 
any other; but it is a deferred income, which is sure 
to be realized in the end. All such property, 
whether in city lots or farms, should, if an income 
tax only were levied, be estimated yearly, according 
to its increasing value, and be assessed upon that 
principle. 

An important consideration, showing the justice 
of the income tax, is this, that, if removed, the 
amount that has hitherto been raised by it must be 
thrown upon consumption, and, of course, to a great 
extent, upon the laboring classes. While laid upon 
incomes over $1000, the tax fell mainly upon capital. 
As the capitalist pays no more in proportion to what 
he consumes of taxed commodities than the working 
mechanic or day laborer, he ought to pay a tax which 
shall, at least, in some measure, secure an equality 



NATIONAL TAXATION. 353 

between him and the laboring man. Hence the re- 
moval of this tax would be an act of great injustice 
to the producing classes, who consume by far the 
greater part of all commodities upon which customs 
and excise duties are collected. 

TAXATION UPON EXPORTS. 

Whenever a people produce more of any commo- 
dity than is required for their own consumption, the 
surplus must find a foreign market, or the produc- 
tion will not be extended beyond the home demand. 
Anything, therefore, which has a tendency to pre- 
vent the sale of domestic products in a foreign mar- 
ket must discourage home industry. Such being the 
case, what must be, in general, the effect of duties 
laid upon exports? Evidently to reduce the amount 
exported, and benefit the foreign producer of the ar- 
ticles thus taxed. 

The unquestionable effect of export duties is to 
lessen production at home and give encouragement 
to foreign labor. This is a general principle, appli- 
cable to every commodity of home growth or pro- 
duction, except such as one nation may have a virtual mo- 
nopoly of; that is, may be able to produce iirto much 
greater perfection, or at so much lower rate of cost, 
or both, that no other nation can compete with it. 
In that case the exporting nation might impose a 
duty, which, w T hileit should create a revenue, would 
not lessen production materially, if at all. 



354 DISTRIBUTION. 

TAXATION OF COTTON. 

Many persons are of the opinion that an export 
duty, or its equivalent in the form of excise, might 
be laid upon cotton without any detriment to the 
general interest of the trade of the country, while it 
would produce a considerable revenue at the ex- 
pense of the foreign consumers. 

It is, then, an important economical and financial 
question to the people of the United States, whether 
the peculiar advantages they have over all other 
cotton-growing countries give them such a monopoly 
as to enable them to lay an export duty upon it, with- 
out any immediate or remote injury to themselves. 

The consideration which must determine the ques- 
tion is simply this, — if cotton can be produced in 
the United States so much lower than anywhere 
else that the imposition of an export duty, say of 
two cents per pound, would not afiect its sale or the 
demand for it in other countries, then the duty might 
be laid, and the whole burden of it w T ould fall on 
the foreign consumer. The country would gain the 
entire amount of the excise, and yet the producer 
be in no degree injured by it. Such a result is pos- 
sible in the future, since the advantages of our soil 
and climate are so superior to those of any other 
cotton-growing region, and the area upon which cot- 
ton may be raised so extensive. 

The area upon which the successful culture of 
cotton may be carried on has been estimated at 
666,196 square miles, while only 10,888 have as yet 
been used. 

From these facts it will be seen that the raising 



STATE TAXATION. 355 

of cotton in the United States must eventually be 
brought to the same general level of profits as other 
branches of agriculture, and as its price in the mar- 
kets of the world will be governed by the same law 
as the price of wheat and similar products, it may 
come to pass that it may be reduced so low, and yet 
be as profitable as agriculture generally, that an ex- 
cise duty might be laid upon it that would advantage 
the nation to the full extent of its amount, and not 
in the least injure the cotton grower. The future 
will disclose whether such shall ever be the result. 



CHAPTER XL 



STATE TAXATION. 



A general valuation of all real and personal prop- 
erty is made by the authority of the State, accord 
ing to which all State taxes are apportioned to each 
county, city, or town. The municipal authorities 
then assess the amount allotted them upon the prop- 
erty and polls of their constituents, together with 
the amount required for city or town expenditures. 

Such taxes are direct, and laid wholly on property, 
except the small amount of poll-taxes. There may 
be some slight variation in different States from the 
course we have stated; but it is quite unessential, 
and does not materially change the grand result. 
The law makes it the duty of each person to furnish 
the assessors annually a true invoice of his estate, 



356 DISTRIBUTION. 

and to its correctness he may be required to make 
oath; and, if any person neglects or refuses to make 
such inventory, the assessors make one for him, ac- 
cording to their own judgment. 

The rate of tax varies from year to year, and is 
widely different in different towns and cities. Be- 
fore the late war, the rate in Massachusetts was 
seldom less than sixty, or more than one hundred 
cents on a hundred dollars ; but such have been the 
expenditures caused by the war, that few now have 
a rate less than one hundred, and some have been 
as high as three hundred and fifty, cents on the hun- 
dred dollars. 

This tax, if the valuation be fairly made, approxi- 
mates to justice and equality. It is assumed that 
every man's ability to pay is in proportion to the 
property he holds; that his revenue corresponds 
with his wealth. This may, or may not be true; 
and, as we shall have occasion to show, there are 
circumstances which disturb, to some extent, the 
equal operation of this tax. 

And here we may notice some of the objections to 
this compound system of poll and property taxation. 
Poll-tax payers vote directly upon the public appro- 
priations, yet they have no personal interest whatever 
in the amount of expenditures. No matter whether 
a proposal to expend money is wise and necessary, or 
frivolous and wasteful, the poll-tax payer can vote for 
it w 7 ith entire impunity. It is nothing to him whether 
the sum be one thousand or ten thousand dollars. 
Indeed, the influence of poll-tax payers is often in 
favor of the most lavish expenditures. A new road, 
for example, is proposed in town meeting. It may 



STATE TAXATION. 357 

be quite unnecessary, and ought not to be made; 
but the poll-tax payers, a large share- of whom are 
laborers, will be immediately benefited by the de- 
mand that will be- made for labor, and will be very 
likely to be in favor of it. It needs no argument to 
show the bad effects of such a state of things, re- 
garded only in an economical point of view. If 
men may vote away money in the payment of which 
they have no interest, is it likely to be done to the 
advantage of the public ? Is it not certain that there 
will be unwise and reckless expenditures? 

This false position of the poll-tax payer has at- 
tracted the attention of those who are narrowly 
watching the effects of equality of suffrage without 
equality of taxation. The result of popular votes 
during the civil war, by which immense, and often 
"quite unnecessary, burdens were imposed upon 
towns, has caused no small anxiety among those who 
have noticed the natural consequences of giving to a 
class numerous and powerful, at the ballot-box, the 
power to impose taxes upon the public, from which 
they are themselves exempt. 

On the other hand, the poll-tax payer, while he 
contributes heavily towards the national expendi- 
tures through customs and excise, has no direct vote 
in regard to them. He can vote where his own in- 
terest would lead him to vote wrong, but has no 
power to vote directly where his interest would lead 
him to vote right. 

The income-tax principle, if universally adopted, 
while it would doubtless relieve poll-tax payers of a 
part of their present taxation, would, at the same 
time, bring their interests into harmony with those 



358 DISTRIBUTION. 

of property-tax payers, and thus promote the gen- 
eral welfare of the public. 

It hardly need be said that this form of taxation 
is not in accordance with the maxims laid down by 
Adam Smith ; those who pay it not having equal 
ability, or enjoying " an equal revenue.' ' It is a tax 
founded on no sound principle whatever, and, if it 
were the only tax imposed, would be as unjust as a 
tax could well be. It forms, however, only a part 
of a system which must be looked at in all its bear- 
ings, in order to form a correct judgment of the 
operation of this particular tax, which by law is a 
limited one, determined by State legislation. In 
Massachusetts, the maximum poll-tax is now fixed 
at "not over two dollars/' but maybe, as it has 
been, changed from time to time. It has never, we 
believe, been higher than at present. 

The property- and poll-tax being the two modes 
by which all revenues are raised by the individual 
States, we will look for a moment at their operation 
as between the different classes upon which they are 
imposed. To do this, we refer to a valuation and 
tax list before us, and find the following examples : 

B. H. — Buildings and 45 acres of land . . $1000 
Stock, etc 345 



$1345. Taxes, $15.47 
Poll, 2.00 



T. G.— Buildings and 43 acres of land . . $1500 
Stock 238 



$17.47 



$1738. Taxes, $19.99 
Poll, 2.00 

$21.99 



STATE TAXATION. 359 



L. G. S.— Buildings and 56 acres of land . $1200 
Stock 300 



$1500. Taxes, $17.25 
Poll, 2.00 

$19.25 
Average property, $1528. Average tax, $19.57. 

We here find that these small farmers pay $19.57 
each, equal to nine and a half times as much as the 
poll-tax contributors. Does any one suppose that 
the incomes of the former are nine and a half times as 
great as the latter ? Let us test the question. 

Suppose each of these farmers derives anet income 
of ten per cent, on his capital, over all outlays and 
repairs, and that his labor is worth to him five hun- 
dred dollars per annum. This is a large allowance : 

Land and stock, as above, at ten per cent $152.80 

His own labor equal to 500.00 

Total income $652.80 

Now, we will assume that the exclusive poll-tax 
payers have an average income of four hundred dol- 
lars. We include in this list not only all common 
laborers, but skilled workmen, mechanics, and others 
whose labor is worth, under a sound currency, $1.50 
to $3 per day, and also all clerks, and others whose 
salaries are six hundred dollars and under. Then 
if these classes average four hundred dollars per 
year, it will appear that while the income of the poll- 
tax payers is charged $2, these small property 
holders are charged $19.57, or six times as much as 
they ought in proportion to pay. 

A recent return made to the Legislature of Mas- 
sachusetts showed that there were in the State 



360 DISTRIBUTION. 

112,000 persons who paid only a poll-tax, and that a 
majority of the voters in some of its chief cities 
were of this class, and had, of course, the power by 
their votes to determine the financial policy of the 
cities in which they lived. 

Effect of the Two Systems. — We are now able to 
compare the results of the two different systems, 
viz., national and State taxation. In the national, 
we find that the greater part of all taxes are indirect; 
the State and municipal taxes are, with slight excep- 
tions, direct. The former fall almost wholly on con- 
sumption ; the latter, upon property. The first is 
unjust to labor, or the non-property-holding classes; 
the other is unjust to capital, or those who hold tax- 
able estate. One operates as an offset to the other. 
Neither is just in itself, nor does the action of the 
two systems conjointly establish perfect justice, but 
it approximates as nearly to it, perhaps, as any sys- 
tem of taxation likely at present to be adopted. 

TAXATION OF CREDITS. 

It has sometimes been maintained that credits 
ought not to be taxed, but all assessments be made 
upon values, or property, personal and real. Taxes, 
it has been argued, ought not to be laid upon per- 
sons, but upon that out of which they can alone be 
paid, viz., property. 

But credits are taxed as well as values. A holds 
a farm worth $10,000, mortgaged to B for $5000. A 
pays taxes upon the whole valuation, and B upon 
$5000, as money at interest. A, it is said, is doubly 
taxed. This is a practical question that has often 



STATE TAXATION. 361 

puzzled legislators. Let us. therefore, carefully ex- 
amine it. 

Suppose A and B aforesaid form an entire com- 
munity, and that the whole tax of $150 is imposed 
on property. The whole valuation will then be 
$10,000 (A's farm), and the rate one and a half per 
cent., which A pays, and B goes untaxed. We will 
now change the principle, and have both property 
and credits taxed. The valuation will then be, A's 
farm, $10,000, and B's money at interest, $5000 ; 
total, $15,000 ; and, with the same amount to be 
assessed ($150), the rate will be one per cent., of 
which A pays one hundred, and B fifty, dollars. So, 
then, we discover that A is not doubly taxed, as 
assumed, but at the worst pays only twenty-five dol- 
lars, or one-third more than his share. Such must, 
in principle, be the result of this kind of taxation, 
taking a whole community together. All the amount 
taxed upon credit is so much relief to taxation upon 
property. This seems to be clear; and the justice 
of the thing is established by the fact that A bought 
his farm knowing that it would be subject to a full 
taxation, and bought it cheaper, as we have shown 
in another place, on that account. B, on the other 
hand, accepted his mortgage on the same ground, 
knowing it would be subject to tax on the common 
valuation. Is either party, then, wronged? 

But perhaps another reason may be given why A 
should pay ta^xes upon the whole value of his farm ; 
viz., that, having the usufruct of the whole, he is en- 
titled to all the profits on the farm. "But he don't 
own the whole of the farm." True, that is his mis- 
fortune; if he did, he would obtain a larger amount 

31 



362 DISTRIBUTION. 

of net profits ; but his obligation to pay tax on the 
whole is not impaired because he has the use of a 
part of B's capital. As the owner of the farm, A 
has a chance for all the profits that can be made 
from the whole, while, by the taxation of B on the 
mortgage, the former saves a part of what he w r ould 
otherwise pay in taxes. One pays taxes for the 
profits of business ; the other, for the income on his 
capital. 

In this case we find another very clear illustration 
of the correctness of the income-tax policy. If there 
were no other tax than upon income, the matter 
would stand thus : 



A's amount from his farm, say 

He deducts the interest he pays B 300 

A pays tax on his net income of 600 

B's income is taxed as 300 

Total income to be taxed . $900 

Amount to be raised, one hundred and fifty dollars; 
of this, A will pay one hundred dollars and B fifty, 
and there would be no question as to the justice of 
the system by which both were thus taxed. If A's 
income should be more or less than nine hundred 
dollars, he would pay more or less, and B must pay 
less or more accordingly. 

In the absence of the income-tax principle, what 
can be more equitable and just than the practice of 
taxing both mortgagor and mortgagee ? If the 
former were allowed to deduct from his inventory 
the amount he ow 7 ed the latter, it would often hap- 
pen that, the mortgagee not living in the same town 
or State, so much property would escape taxation 



STATE TAXATION. 363 

altogether. This in some communities, especially 
our Western States, would be a great evil. That 
much hardship may often result from taxing credits 
as well as property is undoubtedly true ; but that 
only affords additional evidence that the income-tax 
principle is the only correct one. Next to this would 
be the levying of all taxes upon property exclusively; 
and if adopted at the very, commencement of a 
social organization, as at the landing at Plymouth in 
1620, it would secure a just taxation, because all 
property would be created, held, and transferred 
under that well-known condition. 

OUGHT GOVERNMENT BONDS TO BE EXEMPTED FROM 
TAXATION. 

The national securities are exempted by Congress 
from all taxation by State and municipal authorities. 
Is this a wise and just policy 

The present debt (1871), if all funded, would 
amount to about $2,300,000,000; at a low rate, the 
interest must be about $125,000,000, and so much 
of annual income must, of course, escape taxation. 
This, in many cases, would cause a very unequal 
distribution of the public burdens. For example, 
in a community where, as is often the case, the 
chief wealth is in the hands of a few persons who 
have succeeded in placing their funds in the national 
stocks, the favored ones can vote for the most gen- 
erous appropriations for any kind of public improve- 
ments, and yet not be assessed a dollar for the 
expense of making them. The poorer class of free- 
holders, with their estates, perhaps, encumbered by 



364 DISTRIBUTION. 

mortgage, find themselves taxed for every acre of 
land, every horse, cow, and sheep they own, while 
their rich neighbor is taxed upon nothing, because 
he holds his property in United States bonds. It is 
certainly very natural that those who are thus taxed 
should feel themselves greatly wronged. They do 
not see why the bondholder should not pay as well 
as the landholder. 

Setting aside all considerations of justice, and 
regarding the matter only in an economical point 
of view, we can perceive that by this exemption the 
bondholder escapes his proper share of taxation, and 
consequently may spend in luxurious gratifications 
the amount he ought to contribute to the public 
charges, while the less fortunate citizen, being obliged 
to pay more than his true share of the public ex- 
penditures, must deprive himself and family of 
many things needful to their welfare and happiness. 
One is made richer, the other poorer, than he ought 
to be. This result cannot be for the public good, 
and the glaring injustice thus inflicted becomes ap- 
parent to every one. Hence the very general dis- 
approbation with which this policy is regarded. 

The apology for all this is the plausible argument 
that if the bonds were not exempted, States and 
municipalities might impose such taxes upon them as 
to render them comparatively worthless, thus depriv- 
\J ing government of the means of raising funds by the 
issue of its bonds. That this is but a specious objec- 
tion may be seen from the consideration that, to pre- 
vent the possibility of such a result, Congress has only 
to provide by law that none of its securities shall ever 
be subjected to any higher rate of taxation than what 



STATE TAXATION. 865 

is imposed upon all other property, personal and 
real ; that they shall be placed in general valuation 
lists for taxation, and be assessed at a uniform rate. 
The objection that the national government would 
be obliged to pay a higher rate of interest, say six, 
instead of five per cent., in consequence of this, has 
no sufficient foundation, because the State govern- 
ments and municipalities would gain the difference 
by their increased valuation ; and, what is more im- 
portant, justice would be secured to all parties con- 
cerned. Each community would have its legitimate 
resources for taxation. The rate of interest paid by 
the general government is far less essential than the 
equality of the general taxation by which all public 
expenditures, national, State, or municipal, are pro- 
vided for. 

With a single question we close the argument: 
If the government of the United States can ne- 
gotiate its bonds abroad, say at five and a half per 
cent., and, at the same time, makes an exemption 
of all local taxes upon the same, equal to at least one 
and a half per cent, more, in consequence of which 
the bonds are taken at home instead of abroad, do 
not the several States lose in their revenues the full 
amount of the exemption, without any advantage 
whatever being gained by the national government ? 

CONVERSION OF THE NATIONAL DEBT. 

We assume the national debt on the 1st of Jan- 
uary, 1872, to be $2,300,000,000, and that the 
annual interest hereafter will average at the rate of 
five and a half per cent., payable semi-annually. 

31* 



366 DISTRIBUTION. 

This is a liberal allowance for interest, since it is 
sufficiently certain that the debt may be consolidated 
at the rate of five and a half per cent, interest or 
less, and of the principal, the sum of 400 millions at 
present bears no interest at all. 

With such data, we say that should Congress ap- 
propriate the sum of $150,000,000 annually for the 
payment of the principal and interest, the whole 
debt would be liquidated at the end of thirty-three 
years and ten months, or during the year 1905.* 

The interest actually paid the last year was, in 
round numbers, $125,000,000. In order to clear off 
the debt, it would only be necessary to pay 25 millions 
annually more than we must certainly pay while the 
present debt lasts. 

The precise burden, then, which the country will 
assume if it undertakes to free itself from its pres- 
ent indebtedness, is the payment of 25 million dol- 
lars annually; no more, no less. 

That a national debt is an unmitigated evil, a con- 
stant drain upon the public treasury, a continual ex- 
pense for its management, an unceasing source of 
official corruption, and a certain cause of weakness 
and danger in case of war or any unlooked-for ca- 
lamity, is quite too obvious to need proof: we there- 
fore turn to the consideration of the practicability 
of liquidating it, and the benefits that would result 
from such a measure. 

1. Its practicability. — If the payment, as we have 
seen, of 25 millions each year will secure the extin- 

* Eor this computation we are indebted to the kindness of E. 
B. Elliott, Esq., the able statistician of the Treasury Department. 



STATE TAXATION. 367 

guishment of the debt in thirty-three years and ten 
months, and we assume that the population in the 
mean time was but 40 millions, we shall find that 
the annual tax per capita would be but sixty-two and 
a half cents, equal to one and a quarter cent per 
week to each inhabitant. But instead of 40 millions 
we may be sufficiently certain that the average num- 
ber during the whole time will be 50 millions, re- 
ducing the contributions to one cent per week. 

Such would be the extent of the effort required 
to discharge the public debt within the period men- 
tioned. Can any reasonable man doubt that tEe 
people of the United States can make this effort 
without any distressing sacrifice or painful self- 
denial ? that they can save the almost infinitesimal 
sum we have indicated without an}' disturbance to 
the trade and industry of the nation ? 

2. Results of paying the debt. — Although thus easily 
accomplished, the result of doing this would be no 
less than the conversion of $2,300,000,000 of mere 
debt, which produces nothing whatever, into capital 
that would of necessity be employed in the active 
industries of the nation ; because, as the bonds were 
discharged from time to time, those who had held 
them (as all do as a source of income) would, of 
course, seek some other mode of investment, and 
railroads, manufactures, commerce, and agriculture 
would be benefited to the full extent of the additional 
investments thus made in them; consequently the 
productive power of the nation would be enhanced 
by this increase of its resources to the extent of over 
two thousand millions of effective capital. 

If it be urged as an objection to this view of the 



368 DISTRIBUTION. 

subject that a considerable part of our national debt 
is held abroad, and therefore the payment of it would 
prove injurious, it may be replied that when that 
part of the public debt were paid off, a large share 
of the amount would undoubtedly be reinvested in 
this country ^in the various State and railroad stocks 
and bonds that are sure to be in market; if not, 
and the funds necessary to meet them were remitted 
to Europe, the practical effect would be to restrict, 
for the time being, the importation of foreign com- 
modities, a result by no means undesirable under 
such circumstances. 

In whatever way we regard the proposal for a 
gradual but certain annihilation of the national debt, 
it must be apparent to all intelligent minds that its 
conversion into business capital will be the result, 
and the nation be greatly benefited thereby. 



CHAPTEK XII. 

FOREIGN INDEBTEDNESS. — I. ECONOMY OF FOREIGN IN- 
DEBTEDNESS. 

Pecuniary obligations, between different nations, 
may be of four different kinds : 

1st. Individual Indebtedness. — This can only be of 
limited and temporary duration, since it must soon 
be paid or wiped out by insolvency. 

2d. Corporate Indebtedness. — This is of two kinds : 
(a) the bonds or other obligations of incorporated 



FOREIGN INDEBTEDNESS. 369 

companies formed for industrial purposes, the build- 
ing of railroads, etc.; and (b) the bonds of munici- 
pal corporations, cities, towns, and counties. These 
have been issued to an enormous extent in the United 
States, and a large amount have been disposed of 
abroad. 

3d. State Indebtedness. — Nearly all the States of the 
American Union have contracted debts and issued 
coupon bonds, which, to a considerable extent, have 
been sold abroad. These rest upon a different foot- 
ing from the preceding, since they cannot be en- 
forced by any legal process. They are secured only 
by the honor of the promisor. 

4th. National Indebtedness. — Great Britain has a 
debt, as heretofore stated, of eight hundred millions 
sterling ; but it is almost entirely held at home. The 
rate of interest on her consols is only three per cent., 
and there is little inducement for capitalists in Amer- 
ica to invest in them ; but it is quite otherwise with 
the United States. Interest here is at least six per 
cent, on the best securities. 

It is generally estimated that about one thousand 
millions of the bonds of the United States have 
gone to Europe. 

II. THE EXPORTATION OF PUBLIC STOCKS. 

"Whether the sale of such stocks abroad is desir- 
able or not, will depend entirely upon the character 
of the commodities sent in return for them, whether 
these be for advantageous or disadvantageous con- 
sumption ; and this again will depend upon the 
financial and commercial condition of the country 



370 DISTRIBUTION. 

from which they are sent. Suppose one hundred 
millions sent to England, and returned in railroad 
iron, which, put into use, pays a net income of ten 
per cent, besides facilitating the transport of cotton 
and wheat, and thus adding to the national wealth. 
As these stocks pay the American holders but six 
per cent., and by selling them and investing the 
amount in railroads they get ten, there is a clear 
gain in income of 66f per cent. The foreigner, on 
the other hand, who could only get four per cent, 
for his money in home investments, now gets six, an 
improvement upon his income of fifty per cent. 
Both parties are benefited. On the other hand, if 
the amount sold were returned in fancy goods, jew- 
elry, etc., which increased the consumption of lux- 
uries, but in no way contributed to reproduction, 
the country would in a short time be poorer to the 
whole amount. The foreigner would hold his bond, 
and get his interest, but the American would have 
nothing to show for it. Or stocks may be exported 
in payment for an actual balance of trade. If, with 
all our export of commodities and specie, there still 
remains an adverse balance, American stocks of one 
kind or another may be sent and sold to adjust it. 
By this last operation the debt is merely " extended" 
or postponed; and as the interest upon ihis must 
be annually paid, a larger export of commodities, 
specie, or stocks must be made in the future. 

FALLACIES RESPECTING FOREIGN INDEBTEDNESS. 

'So sentiment or opinion is more common, per- 
haps, among the people, than that it is very unde- 



FOREIGN INDEBTEDNESS. 371 

sirable, or dangerous even, to have the national 
debt held abroad. Is this opinion well founded ? 

1st. A debtor cannot always choose who his 
creditor shall be. If deeply involved, those will 
hold his securities who are most able to hold them. 
They will, like commodities, go where they are 
most wanted, where they will bring the highest 
price. 

2d. It makes little difference to the debtor, if he 
can meet his obligations when due, who may hold 
them. There is no friendship in trade. Native or 
foreigner will alike demand his pay, when he has a 
right to do so. 

If these propositions are true, we see that it is 
quite impossible to prevent foreigners from pur- 
chasing our national securities, and of little impor- 
tance if we could. It is a great misfortune that we 
are deeply in debt as a nation. If that indebtedness 
were wholly to our own people it would be quite 
favorable ; for then, as a people, we should owe 
nothing at all, since what was to the debit of one 
citizen would be to the credit of another; but if 
this cannot be, and if capital is worth more to us 
than it is to others, then is it not fortunate if others 
are ready to loan us theirs, that is, are ready to 
take our public indebtedness? As an admitted 
fact, the use of capital is about twice as valuable in 
the United States as in England : why, then, should 
we not allow Englishmen to hold our public debt? 

A foreign loan to the United States government 
of one hundred millions in the latter part of 1861 
w^ould have saved the country several hundred mil- 
lions, inasmuch as the suspension of specie payments 



372 DISTRIBUTION. 

might thus have been postponed for a twelvemonth, 
and, perhaps, even been avoided through the war. 
By this means the prices of all the government had 
to purchase would have been kept down to the 
natural standard. This measure, if accompanied 
with the expulsion of all bank currency from circu- 
lation, and with the issue of government notes to 
take their place so far as desirable, would, in the 
end, have saved a great part of the present national 
indebtedness. 

From whatever point of view we may look at the 
subject, we find there can be no well-founded ob- 
jection to the sale of American stocks in Europe. 
On the other hand, such a sale of them must be 
advantageous, when made under a sound currency. 

FALLACIES RESPECTING A NATIONAL DEBT. 

1st. That a national debt is public wealth. 

"The funded debt of the United States is, in effect, the addition 
of three thousand millions to the realized wealth of the nation. 
. . . It is three thousand millions added to its available capital.' 7 * 

If this is so, it is fortunate, so far as the financial 
condition of the country is concerned, that the Re- 
bellion took place; that it continued so long and 
cost so much. Had it lasted long enough to have 
made the debt tenfold greater than it now is, the 
" available capital" of the nation would have been 
correspondingly enlarged; and, of course, its power 

* See pamphlet issued by " Jay Cooke, General Subscription 
Agent for the Sale of Government Bonds," entitled, "How our 
Kational Debt may be a National Blessing." Philadelphia, 1865. 



FOREIGN INDEBTEDNESS. 373 

of production so much increased. It must be a 
misfortune, economically considered, that the war 
closed so early. But let us examine into the truth 
of the assertion that " a national debt is public 
wealth." 

How was it created, and for what? 

It was contracted for war expenditures. The 
operation was simply this: A certain part of the 
people, having the ability to do so, furnished the 
nation with the means to carry on the war. These 
persons became the creditors of the government, 
and they now hold the public stocks. All the rest 
of the people are debtors, and jointly owe the 
amount of the debt. It is a lien upon estates, per- 
sonal and real, and must remain so until liquidated. 
Are those who are the debtors to the bondholders 
any richer in consequence of the existence of the 
public debt? Certainly not: they are just so 
much poorer. They must subtract from their in- 
comes, each year, so much as they have to pay 
for interest on the national debt. Are the bond- 
holders any richer in consequence of the creation 
of this debt? If they actually loaned money, that 
is, coin, as some did in 1861, for which they are 
receiving only the usual rate of interest, they are 
neither richer nor poorer for the operation. They 
have got public, instead of private, securities for 
their funds. If they subsequently loaned mere 
credit currency, or capital at prices advanced in 
consequence of the depreciation of the currency, 
then, in so far, they gained what the government 
lost, or, rather, what that part of the people lost 
who must pay the debt and interest. There was no 

32 



374 DISTRIBUTION. 

increase of wealth in consequence of the increase 
of prices, but merely a transfer of commodities from 
one party to another, without an equivalent. 

But " the national debt is public wealth." Then 
it follows that if the national debt were repudiated, 
the nation would be poorer by its full amount. Is 
that so ? Surely not. The holders would be poorer, 
doubtless, by the amount of their bonds, which en- 
title them to interest semi-annually, and final pay- 
ment in gold; but just what they lost their debtors, 
the public, would gain, and the general wealth of 
the nation would not be affected ^to the amount 
of a dollar, except that in so far as the debt was 
due to persons abroad, the repudiation of it would 
save that amount to the nation. Other than this, 
neither the security nor the insecurity of the national 
debt has the least effect in determining the national 
wealth. 

2d. But, again, it is said that " the debt is active, 
available capital;" and, in illustration, it is said u that 
a man having, say, twenty thousand dollars of the 
bonds, can engage in any kind of business at once, 
just the same as if he had so much cash capital." 

Now, what is the fact? The bonds being good 
securities, the holder can exchange them for cash, 
and with this' can obtain any description of capital 
he may need. The bonds, then, are not capital, but 
only the security upon which capital may be had. 
If the holder had notes against individuals of 
unquestionable credit, he could do the same. Are 
private notes, then, capital? Surely not. 

So far from aiding production, a national debt has 
an effect directly opposite. It depresses industry by 



FOREIGN INDEBTEDNESS. 375 

the taxation it imposes, and reduces its power to 
compete with other countries. 

3d. The third fallacy is, that a public debt gives sta- 
bility to government 

Upon what should the security of a government 
depend? Evidently upon the convictions of the 
people that it is a good government; that it secures 
to them life, liberty, and the pursuit of happiness. 
Any people who know they have such a government 
will need nothing to assure their loyalty and attach- 
ment. Where government rests upon universal 
suffrage, the power is wholly in the hands of the 
people, and no law or constitution can have any per- 
manency that does not receive their approbation. 
Anything that is regarded as oppressive and unjust 
will certainly be abolished. 

France has a large national debt ; yet her govern- 
ment has been revolutionized time and again with- 
out any reference to that fact, and without at all 
disturbing the security of the rentes. National 
debts will be paid, if the people please to pay them; 
and governments will be sustained, if the people 
choose to sustain them. 

Besides, it is, and always will be, true, that the 
number of those who have neither direct nor indi- 
rect interest in the public debt is far greater, prob- 
ably five to one, than those who are interested as 
holders of the stocks, or depositors in savings banks 
who have funds invested to some extent in the pub- 
lic securities ; and, in a great majority of cases, those 
who are thus indirectly interested are so only to 
such a limited extent that they would be actual 
gainers if the debt were repudiated, since they 



376 DISTRIBUTION. 

would gain more from their consequent exemption 
from taxation than they would lose by the non- 
payment of the national debt. 

4th. A fourth fallacy is that a national debt in- 
sures protection to home industry, since the heavy 
taxation it causes will, if laid on foreign goods, se- 
cure that object. Having already discussed the 
question of protection, we need not now enter upon 
it, but remark that a large national debt does not 
make it certain that there will be a high protective 
tariff. Great Britain has the largest debt of any 
nation in the world, yet she has abandoned her pro- 
tective system. She has become satisfied that such 
a luxury is too great a hinderance to her commer- 
cial prosperity, too heavy a burden upon her home 
industry. 

5th. But, again, it is said that a national debt is 
desirable as a basis for a national currency. That 
this is an idle assumption we have already endeavored 
to show. No such foundation is needed for any cur- 
rency which the good of a nation demands. It is a 
false and pernicious system which requires any con- 
nection with national indebtedness. Debt is no 
sound basis for banking. Banks should be created 
to loan capital that exists, not debt for capital that 
has disappeared. 

6th. We will briefly notice one other fallacy in 
regard to a national debt; viz., that the generation 
which contracts it is under no obligation to pay it ; 
since, having been contracted for the good of the 
country, posterity ought to share, at least, the bur- 
den of it. What is the principle involved in this 
statement? Clearly, that one generation has the 



MODERN FINANCIAL SYSTEM. 377 

right to create a debt for such purposes, and to such 
mi extent, as it deems best, and impose on another 
the payment of the whole, or of such part as it does 
not choose to discharge out of its own resources. 
Can this be so ? Would it not follow from this that 
one generation has the right to enslave another, 
since, if it can impose a tax, it can enslave ? for, to 
the extent of the tax, it is slavery, or labor taken 
without compensation. Suppose the tax carried to 
such an extent as to consume all the products of the 
laborer over that which is absolutely necessary to 
existence. If the present generation may lay a tax 
of ten dollars on each producer for all time to come, 
it may lay one of a hundred dollars, or a thou- 
sand. If it may take away a fourth of a man's in- 
come, it may take a half, or why not the whole? 
The right to tax posterity at pleasure is the right to 
establish a most terrific despotism ; and yet this is 
one of the popular sophisms of the present day. 



CHAPTER XIII. 

RISE AND GROWTH OF THE MODERN FINANCIAL 
SYSTEM. 

No large national debt has ever been paid, or in 
any way discharged, except by repudiation. The 
debt of the old French monarchy was wiped out 
with the " assignats." The debt incurred in the 
American Revolution vanished in worthless " con- 

32* 



378 DISTRIBUTION. 

tinental money." The present debts of England, 
France, Austria, and other European countries are 
so large, the constantly-increasing demand for more 
extensive and costly armaments so pressing, so abso- 
lutely overwhelming, that the hope of any payment 
of the principal cannot be reasonably indulged. 

That general system of finance, of which national 
indebtedness forms so important a fact in its influ- 
ence upon the industrial interests of mankind, de- 
serves a careful consideration. 

When William of Orange succeeded to the throne 
of England, Louis XIV., then at the zenith of his 
power, refused to acknowledge him as a legitimate 
monarch, and espoused the cause of the exiled 
Stuart. War, of course, followed. But fighting, in 
consequence of the invention of gunpowder, and 
the changes it gradually introduced into warfare, 
had become a costly indulgence ; a game which 
kings, with their limited and uncertain revenues, 
could ill afford to play at, particularly for a great 
length of time. War with one so powerful as the 
Grand Monarque could not be safely commenced or 
successfully prosecuted, while every penny must be 
extorted from a reluctant and now independent 
Commons, and the taxes immediately assessed on 
the large land or other property holders of the realm. 

Such was the difficulty which King William en- 
countered; but, fortunately for his fame, he was a 
shrewd financier, as well as an able soldier. Up to 
this time, England had never had a permanent or- 
ganized national debt, a national bank, or any regu- 
lar and reliable system of revenue. Grants and 
subsidies had been voted occasionally; duties and 



MODERN FINANCIAL SYSTEM. 379 

special taxes had been imposed ; but these were not 
to be depended upon. 

The monarch might and did borrow money from 
time to time, in great emergencies, but on the most 
disadvantageous terms. The credit of the govern- 
ment was always low, because there was no regu- 
larity or system in the public finances. Men had 
no confidence in the responsibility or punctuality 
of the government. William changed all this. He 
borrowed for a specified period, and promised the 
punctual payment of the interest semi-annually, and 
the principal when due; and pledged "the public 
funds" for the fulfilment of his promises. 

He negotiated loans and issued stocks. He granted 
annuities, upon the payment of specific sums. In- 
terest and principal were secured by a pledge of 
the public funds, or revenues derived from specific 
sources. This put a new face upon the financial 
affairs of England : but something further was de- 
sirable; viz., an agency by which the national debt 
would be readily managed, and its semi-annual in- 
terest promptly paid. This was accomplished by 
the incorporation of a national bank, consisting of 
the holders of the public stocks, to the amount of 
£1,200,000. 

One thing more was wanting; viz., a permanent 
and sufficient income, to meet not only the interest 
on the accumulated debt, but the current expenses 
of the government, already large, and constantly 
increasing. To effect this, a land-tax was estab- 
lished; small, indeed, in amount, and upon a fixed 
valuation, so that it could not be increased with the 
increasing value of the land. 



380 DISTRIBUTION. 

A tariff of duties on all imports was also introduced, 
and an excise laid upon all home manufactures and 
products. In short, a system of indirect taxation was 
adopted, far more general and effective than any 
w r hich had before existed. 

Thus was completed the grand triad of the system 
of finance, inaugurated by the English Revolution; 



FUNDING, BANKING, AND INDIRECT TAXATION. 

The immediate, as well as ultimate, results of the 
new financial policy are alike remarkable and worthy 
our attention. 

1st. The credit of the government was now firmly 
established. 2d. It could carry on war by borrow T - 
ing money instead of imposing taxes. 3d. This re- 
moved the fear of oppressive taxes upon the land- 
holders and other wealthy persons, because the 
larger part of the taxation fell upon the masses of 
the people, w T ho were obliged to pay not in propor- 
tion to property, but consumption. The new policy 
was especially acceptable to the aristocracy, who at 
that time even more than now monopolized those 
public offices whose emoluments and patronage 
were increased by the increased war expenditures 
of the government. 

In the subjoined diagram, we have an exact and 
comprehensive history of the British national debt, 
in its origin and progress. And the histoiy of this 
debt is the history of every other national debt. All 
have originated in war, have grown by successive 
wars, and have not been discharged in time of peace, 



DIAGRAM N°. 6. 
Rise and Growth of the British National Debt. 



1688 English Revolution 



1697 



William and Mary. 




William IV. 



Victoria. 



* Emancipation of the West Indies. 



MODERN FINANCIAL SYSTEM. 383 

because the nations involved in them have squan- 
dered their resources in preparations for future wars. 

Hence this diagram, in all its essential features, 
represents them all with equal correctness. 

In connection with this policy of permanent na- 
tional indebtedness, and the system of funding, in- 
direct taxation, and paper-money banking growing 
out of it, we now turn to consider 

THE RESULTS OF THIS FINANCIAL SYSTEM. 

1st. An immense extension of the war system. Prior 
to the introduction of this policy, standing armies 
and armaments were exceedingly limited. Now all 
Christendom is armed, by land and sea. 

2d. Universal and constantly increasing indebtedness. 
This is true of nearly every country in the world. 
England, indeed, has not increased her debt for the 
last thirty years ; but almost every other govern- 
ment has been borrowing money from year to year, 
until many of them are as much burdened by their 
indebtedness as England, because, in proportion to 
their wealth and resources, they are as deeply in- 
volved. 

3d. Impoverishment of the masses. This is especially 
apparent in England. What has become of that 
yeomanry, once the pride of the country ? Their 
little estates have disappeared, have been swallowed 
up by the terrible system of taxation to which they 
have been subjected. The pleasant hedges which 
still surround the small inclosures, once constituting 
the freeholds of her yeomanry, may yet be seen in 
all parts of the country. They are the monuments 



384 DISTRIBUTION. 

of an industrious, brave, and independent class of 
men, now extinct. These lands are indeed tilled by 
the hands of their descendants, no longer yeomanry, 
but peasants, almost the paupers of the nation. How 
strikingly true this is may be seen in the fact that 
there are but one-third as many " holdings" at the 
present time as one hundred and fifty years ago, 
while the wealth and population of England have 
doubled many times. 

The economy of a national debt, under the modern 
financial system, must always impoverish the pro- 
ductive classes. Its entire influence on them is op- 
pressive. It deprives them of their honest reward 
by a false currency, which robs them of a large share 
of their nominal wages; it imposes upon them, 
through indirect taxation, an undue proportion of 
the public burdens, and is, in fact, a stupendous 
enginery for depressing them, though perhaps not 
so intended. 



CHAPTER XIV. 

ON THE LAWS OF INHERITANCE AND BEQUEST. 

Men die, and the property they had acquired or 
held during their lives must pass into the possession 
of others. May the person who is about to leave 
the world say to whom his wealth shall immediately 
descend? May he go further, and say to whom it 
shall descend for all coming time? May he go 



INHERITANCE AND BEQUEST. 385 

further still, and determine what specific use shall 
be made of his wealth forever? Or shall the laws 
of the State decide the questions, — to whom, for 
what purposes, and for how long, the wealth of de- 
ceased persons shall descend ? Does the world and 
its wealth belong to the living or the dead, or to 
both in common ? If to both, what portion should 
belong to each ? Which party, the living or the 
dead, will most intelligently decide how wealth can 
be advantageously employed in production, or in 
any other mode, for the benefit of the living? 

These are the points involved in the subject of 
Inheritance and the testamentary disposal of prop- 
erty, and are important in an economical point of 
view, irrespective of all other considerations. These 
questions have been practically decided by the laws 
and institutions of society in different ages and 
countries. Governments have always interfered in 
regard to the estates of deceased persons to such an 
extent as to prescribe limitations and conditions. 
So far as these have been in harmony with instincts 
of humanity, and the laws of value, they have been 
beneficent in their operation. But all the wealth, 
all the institutions, all the interests of society, should 
ever be regarded as fully under the control of the 
existing generation of men. This should be a fun- 
damental principle in civil polity; and, if law may 
interfere in this matter at all, it may do so to any 
extent the public interest shall demand. 

It has been said that nothing is more unwise than 
to attempt to bind posterity with parchment; and 
the more enlightened the public mind becomes, the 



386 DISTRIBUTION. 

more apparent will be the utter folly of allowing the 
past to govern the present. 

In some countries, the laws have not only provided 
for the manner in which wealth may be disposed of 
by testamentary provisions, but have often ordained 
that certain estates shall be inalienable. Thus, the 
landed property of a people, seized by violence, has 
been made a perpetual inheritance to the favored 
parties and their descendants forever. This class of 
persons has often been invested with the powers of 
government; and class legislation has strengthened 
and increased what force or fraud had achieved. 

So far as a class, more or less strictly limited, or 
highly distinguished, reaches a position of property 
or influence by moral perfections, by high intel- 
lectual endowments, or by successful business oper- 
ations, agreeably to the laws of wealth, and under 
the test of ordinary competition, it is not taken out 
of the principles heretofore laid down. But so far 
as it has been placed arbitrarily in the possession of 
large proprietors, and maintained so by thwarting 
the action of natural laws, it is by that removed from 
the primitive rule of distribution, and requires to be 
separately considered. We shall regard it only from 
an economical point of view. 

By an order of things in which we see great 
benevolence, no family or class is able permanently 
to secure the integrity of its estate. Otherwise, 
property would tend to aggregate itself, so as to 
crush competition, and leave the greater part of the 
world destitute. As it is, the foolish son dissipates 
the gatherings of the wise father, and alienates the 
lands that have been annexed, acre after acre, by 



INHERITANCE AND BEQUEST. 387 

prudence and frugality. A single break in the suc- 
cession of industry and economy will scatter the ac- 
cumulations of ages. This liability of the rich is the 
property of the poor. Just as surely as the lapse of 
ages wears down the craggy mountain-tops to form 
the soil of the humble valleys, so surely do aggrega- 
tions of wealth gravitate every hour to the general 
level. 

To contravene this provision of nature, the law of 
the land often shuts in these estates by arbitrary 
enactment or judicial interpretation, and so keeps 
out the busy, unrelenting competition, which other- 
wise would, sooner or later, bring the proudest struc- 
ture to the ground. All such legal arrangements 
may be summed up in — 

THE LAWS OF PRIMOGENITURE AND ENTAIL. 

1st. Of the rightfulness of such laws. 

In the order of nature, no man brings with him 
into the world a store of wealth for his subsistence 
and support through life, or finds it waiting especi- 
ally for him. His means of livelihood are to depend 
on the inborn faculties of appropriation, on the store 
of wealth already existing from which these may 
draw, and on the natural agencies of production 
which they may employ. But if the latter condi- 
tions are removed, and the man is forbidden access 
to the fields of labor, he is condemned to be desti- 
tute, in a greater or less degree, no matter how well 
endowed, or how fully he obeys all economic laws. 
With these open to him, he is certain of success. 
It matters not at all, that all the wealth of the world 



888 DISTRIBUTION. 

is now taken up, that every inch of ground is pos- 
sessed. Though utterly without legal claim, he is 
yet, in his faculties of industry and appropriation, 
sure to become the owner of some part of it, at least 
sufficient for his wants. 

In the state of nature, man enters on life, feeble 
and destitute, but with powers of absorption and 
assimilation. These, not human charity or human 
justice, award the world's wealth, and sustain the 
lives for wise purposes created. 

Injustice and mischief are done by laws of primo- 
geniture and entail. So far as they operate, they 
shut off the industry of the world (and the wants 
which that industry must supply) from its proper 
field. We have said that the liability of wealth to 
dissipate is the property of the poor. It is so. A 
man entering the world may have no claim to any 
share of its previous gains; but he has a claim to a 
chance at them. This is the provision nature has made 
for his maintenance. This is his inheritance. He 
has a right, at least as complete as the plant, to get 
his growth and his support out of the soil about 
him. There is nothing in this view agrarian or 
communistic. It admits that property should be 
sacred; but it asserts that it should be alienable. 
The right of property does not include the right of 
the wise to get wealth, and of fools to keep it. To 
shut up any part of the world, for the benefit of one, 
is to rob all others, not of it, but of their chance to 
acquire it lawfully. A system of entail dwarfs all 
existing industry, so far as it operates. 

2d. But, besides the general objections to such a 
system on the grounds of justice, we meet cer- 



INHERITANCE AND BEQUEST. 389 

tain considerations of expediency that deserve 
notice. 

(1) The capital thus kept together by laws for- 
bidding alienation is often so large that it cannot 
be managed by individuals for the best economic 
advantage. Of course, a government might provide 
for the preservation of properties not excessive. But 
it is not such that have been made perpetual ; and 
there can be no occasion to lock up, in this way, 
moderate estates. Great accumulations will be made 
under any free and peaceful government; and it is 
neither the right of government, nor the interest of 
society, to interfere to scatter them. The sacred- 
ness of property makes a greater demand than the 
mere productiveness of capital. Besides, this has 
been collected, and is kept together, by economic 
virtues, which should ever receive their natural re- 
ward. But it is not in the order of things that such 
mountains of wealth should remain. 

(2) Such aggregations of wealth destroy, in great 
part, the desires which lie at the root of all activity. 
The spring of industry is want. Let us take into 
calculation the sum of one million of dollars. It 
cannot be doubted that this, as a reproductive 
agency, would be quickened by more desires if in 
the hands of one thousand men, than if in the hands 
of only one hundred. Certainly the necessities of 
each will be more pressing: why not his activities 
more aroused? How much mightier, then, the cur- 
rent of energy with which the greater body moves 
on to its object! 

On the other hand, if we suppose the sum to be 
vested in the possession of one person, we shall have 

33* 



390 DISTRIBUTION". 

the desires greatly weakened. This is not the man 
who, "from the rising of the lark to the lodging of 
the lamb," toils with unrelaxed nerve; to whom 
every gain is needful bread ; from whom every sav- 
ing removes a pain. 

Erskine, as his courage sank in dismay on his 
first pleading, seemed "to feel his children pulling 
at his gown," and so took heart to go on. Every- 
where it is the hands of the little ones, plucking at 
the sleeve, that elevates labor into heroism. 

(3) Such aggregations draw off an undue propor- 
tion of wealth into luxuries. This is the necessary 
consequence of what has just been exhibited; while 
its own results will appear more specially in the de- 
partment of "Consumption." 



BOOK V. 

O OUST S IT JUL IP T IOILsT. 



CHAPTER I. 

DIVISIONS OF THE SUBJECT. 

Consumption is the use of wealth. It is precisely 
the converse of production. If production were, 
on the one hand, the creation of an article, consump- 
tion would be its annihilation. But as human labor 
cannot bring one atom into existence, so neither can 
it return one to nothingness. Since man's efforts 
expend themselves in arranging matter into certain 
desirable forms, so man's satisfactions do, directly or 
indirectly, soon or late, exhaust those properties or 
peculiarities of form that have been imposed on 
matter; and leave it, in the act and for the time, 
vacant of the elements of value. This result is 
reached in the consumption of wealth. 

There can be no use of wealth, without this 
change of form ; while the merest change of form 
oftentimes answers all the conditions of consump- 
tion. This consumption may be for any purpose, — 
for luxury, wastefulness, or reproduction ; may be 
within any time, — from the slow wear of the pre- 

(891) 



392 CONSUMPTION. 

cious metals to a perishing that is almost simulta- 
neous with the making; maybe in any degree, — 
from a total disappearance, as when wood is burned, 
to a change which the most practised eye can hardly 
detect. 

The seed is consumed when it is planted in the 
ground to bring forth one hundred-fold. The cigar 
is consumed when it goes off in smoke. 

Such consumption of wealth is constantly taking 
place in industrial society; and in this light we see 
the great importance of the principles which govern 
in this department: what momentous decisions are 
made at each change of the form imposed by labor 
on matter; how the wealth of the world goes up or 
down, with the new direction given it. 

It would be impossible to give a catalogue of all 
the distinct acts of consumption that take place in 
the narrowest field and in the shortest time. It 
might be even impossible to decide distinctly when 
any one of them actually began or ended ; so that, 
if the science depended on determining them accu- 
rately, we should be forced to close our inquiries at 
once, as useless. No eye can detect their processes; 
no thought can reach down to the real spring of 
economical life. But we can find in the general 
results, as they come out in national or individual 
experience, enough for practical instruction and 
guidance. 

The consumption of wealth may be regarded as 
of four kinds, — mistaken, luxurious, public, and 
reproductive. We shall speak of them in that 
order. 



MISTAKEN CONSUMPTION. 393 



I. MISTAKEN CONSUMPTION. 

What shall we do with that large class of indus- 
trial actions which bring no reward to those who 
perform them ? 

We find labor and capital applied with the pur- 
pose of reproduction, but without result. And this 
not occasionally; but the share of failures can almost 
be determined with certainty, and is found to bear 
no inconsiderable proportion to business enterprise 
the world over. Indeed, in some occupations, entire 
success forms the exception. 

These cases of mistaken industry would present 
very few questions but for the secondary uses to 
which we sometimes find them applied. Gibbon 
describes the towers, citadels, and palaces of Rome 
as built on the foundations of the ancient temples, 
theatres, and arches. We can draw a figure thence 
to our modern industry. The fortunes of one gen- 
eration often rise from the failures of that which 
went before. If we trace the history of many of 
the most flourishing establishments, we shall find 
them resting at last on some great outlay of capital, 
or expenditure of labor, that ruined some man or 
corporation, and finally went to pay taxes or office 
rent. Such has been the fate of many of the rail- 
roads of the United States; so much so, that it has 
passed into a proverb that such stock must be sunk 
once to pay at all. 

The same thing occurs frequently in the course of 
individual enterprises. Men undertake great mat- 
ters, launch into immense expenses, and, after sink- 



394 CONSUMPTION. 

ing the full amount of their capital and credit, stop 
hopelessly. The works stand idle and melancholy 
for years, till some new industry or some shrewder 
manager takes them at half cost or for nothing, and 
gets a fortune out of them. 

When one of the later emperors would build a 
monument of his achievements, he was forced to 
use fragments of older architecture; and so, history 
tells us, the head of Trajan frowned from the arch 
of Constantine. Many a modern fortune is pieced 
out of the wreck of earlier industry. 

1st. Capital is fallible in its calculations. Plau- 
sible schemes, based on views that are partial or 
temporary, draw even the ablest financiers into such 
investments. It would be out of reason that such 
errors should not be committed, even with the keen 
scent of personal advantage and trained observation. 

2d. Extravagance is a frequent cause of business 
failure. Men, in originating enterprises, sanguine in 
feeling, and exhilarated by the possession of large 
capital, almost invariably indulge in a scale of outlay 
which the return does not justify. They find it un- 
pleasant or undignified to omit anything from the 
completeness of preparation out of considerations 
of economy. The result is, the expense of starting 
( ] rags on them through the whole course, and perhaps 
ruins them. 

3d. Another reason is found in those accidents or 
great developments which transfer business from one 
seat to another, just as wells give out with no appa- 
rent cause. The axis of commerce shifts its place, 
and leaves tropical bones and tropical fruit high on 
the northern hills. 



LUXURIOUS CONSUMPTION. 395 

Whatever, from any cause, fails to recompense its 
outlay, though it may still have some utility, is to be 
considered as so much added to the common agencies 
of society. If anything comes out of it, this is to be 
counted as so much received from the gratuitous 
gifts of nature. Whoever, by shrewdness or chance, 
has possession of them, is fortunate. A canal or 
railroad, whose stock has been once sunk, stands in 
just the same relation to political economy as do 
rivers and natural causeways, which facilitate travel, 
and render production easy, but are not capital, in 
the scientific sense of the term. 

II. LUXURIOUS CONSUMPTION. 

Luxury, — what is it, and what are its effects, eco- 
nomically considered ? Noah Webster defines it as 
"a free or extravagant indulgence in the pleasures 
of the table, as in rich wines and expensive diet, or 
delicious food and liquors ; voluptuousness in the 
gratification of the appetites, or the free indulgence 
in costly dress and equipage." We must give a far 
wider definition for our purposes, in the science of 
which we treat. A fine house is certainly as much 
a luxury as fine clothes or costly wines; so are 
statuary and paintings; so are a vast number of 
articles of common consumption in every condition 
of life. It is quite clear, too, that what would be 
esteemed a great extravagance in the royal establish- 
ment of Dahomey would be far otherwise in the 
humblest dwelling of Europe. 

It is apparent that a specific definition of the term 
" luxury" is impossible; yet we can give a general 



89G CONSUMPTION. 

formula that will be sufficient for our purpose. 
Luxury in the community is indulgence in those 
expenditures which are beyond the reach of the 
great mass of the people : luxury in the individual 
is indulgence in those expenditures which are be- 
yond the strict necessities of maintenance, according 
to the customs of the social or economic class to 
which he belongs. 

Of course, this standard will vary in different 
countries, the inhabitants of one being able to com- 
mand many indulgences which are denied to others. 
The luxuries of Europe are daily fare in Asia, while 
articles of common decency in an Irish hovel are 
unknown in the court of Delhi. Nor only this : the 
scale of luxury changes with every j^ear. Those 
articles which in one generation indicate wealth, 
become common property in the next. This results 
from the general progress of society and the constant 
advance of economic powers. As production rises, 
it covers the monuments of earlier taste or grandeur. 

The ground of luxurious consumption is, perhaps, 
best determined by the boundaries of its neighbors. 
It embraces nothing that is spent in the purpose of 
a reproduction, more or less immediate and direct. 
The necessary consumption of a people depends 
chiefly on absolute wants, is not greatly a matter of 
choice, fancy, or taste ; but its luxuries, those things 
which it may or may not have, depend entirely, for 
their kind and degree, upon moral and intellectual 
characteristics. Consequently, they furnish an index 
of the national civilization. 

1st. Do luxuries directly encourage industry ? 

We shall reach the truth of this by illustrations. 



LUXURIOUS CONSUMPTION. 397 

When William IV. came to the throne of England, 
he erected a tower at one of the entrances of the 
palace where he made his residence. It cost 
$500,000. There was no pretence of utility what- 
ever in the building. It was pure luxury. It was 
an elegant structure. It gratified the monarch's 
taste. It was highly ornamental to the castle and 
the grounds. What was the economical effect ? 
The erection gave employment to mechanics and 
laborers; it made a call for materials and architec- 
tural skill ; it made trade brisk in the neighborhood. 
Was it therefore beneficial? Suppose it had ac- 
corded more with his majesty's views to take the 
same money, and with it erect two hundred cottages 
on the crown lands, at an expense of $2500 each. 
This would have called for as much labor and ma- 
terials as the tower ; would have given as great an 
impetus to trade. At the same time, it would have 
brought into existence comfortable residences for 
the families of two hundred laborers. If the cot- 
tages were rented at a moderate rate, the income 
would be equal to a fair interest, and the dwellings 
would stand for generations, a valuable property, 
conferring happiness and comfort on a thousand 
people. 

But there is more to come. We said, " take the 
same money." What money? Whose money? 
Now, in arguments for govermental luxury, it is 
always assumed that the money is in the treasury. 
But how came the money into the public coffers ? 
Who furnishes the money ? The sober, steady in- 
dustries of the country. The money to make King 
William's tower came from Leeds and Sheffield and 

34 



398 CONSUMPTION. 

Manchester. It encouraged one class of artisans. 
True. Whom did it discourage ? A class that is 
always out of sight in such reckonings, — the class 
that pays the taxes. 

Then, so far, it only amounts to changing the 
capital of the country from one hand to another ; 
employing one class by turning off another ; a change 
that is never made without distress and loss. 

There is still more to be said. If the wealth had 
remained in the hands of the manufacturer, say, it 
would have been capital, and supported workmen 
this year. So has the tower. But, in the latter use, 
next year it will be no longer reproductive ; while, 
in cotton-spinning or land-draining, it would grow 
with every day, and furnish unfailing employment 
for labor. A thousand dollars spent in luxury will 
pay a thousand dollars of wages (less certain little 
items). A thousand dollars employed as capital will, 
in ten years, pay twenty thousand dollars of wages. 
Such is the difference in results. 

"Wealth, employed as capital, is an annuity made 
out in the name of the laborer, and good for life. 
There is no possible case in which its employment 
for purposes of luxury, as opposed to reproduction, 
can be said directly to advantage industry. 

2d. Do luxuries indirectly encourage industry? 
Here we must turn sharply on our previous decision, 
and see a further meaning in luxurious consumption 
than first appeared. Unquestionably, a wholesome 
luxury is one of the most important principles of 
production. What is it that kindles the desire of 
acquisition ; that keeps the hand strong to labor ? 
Is it not the hope to spend ? For what else, the 



LUXURIOUS CONSUMPTION. - 399 

wretched miser excepted, do men toil early and late ? 
It is the promise of future enjoyments that calls out 
half the work of the world. 

There is one practical limitation of this principle, 
which is of great social and economical importance. 
It arises from the relative position of those who do, 
and those who as yet cannot, indulge in luxurious 
consumption. If a few are very rich, aud the many 
very poor, the expenditures of the former have very 
little effect on the condition of the latter. Since 
these cannot aspire to the enjoyment of their supe- 
riors, their ambition, instead of being excited, is de- 
pressed. If, on the contrary, the interval between 
the classes is narrow and the differences moderate, 
the luxuries of the rich exert strong and increasing 
desires in those who are less wealthy. These desires 
create wealth. 

The luxury of European courts has no elevating in- 
fluence upon the masses : quite otherwise. Robbed 
to furnish the means of others, they are hopeless 
of ever attaining to such fortune themselves. But 
where the grades of society are fixed only by dif- 
ferences of natural endowment, and so are moderate 
and regular, rising by easy steps, the entire popula- 
tion becomes inspired with the purpose of reaching 
a higher position. 

We have, then, attained the principle, that luxu- 
rious consumption, while it directly gives no help to 
industry, but rather spends in one hour's enjoyment 
the provision of months or years, may yet, by its in- 
fluence on man's desires, create a productive force 
which shall make its extravagance seem economy, 
its waste appear frugality itself. But this is only 



400 CONSUMPTION. 

true of harmonious, temperate, and well-propor- 
tioned luxury. 

Such is luxurious consumption, in its definition 
and its general principles. We shall further discuss 
the degree to which it is, or may be, carried in any 
community. 



CHAPTER II. 

ON THE DEGREE OF LUXURIOUS CONSUMPTION. 

We mistake, if we attribute luxuries to the rich 
alone. It is estimated, on the best authority, that 
of the taxes paid by the laboring poor of England, 
out of every twenty-one shillings, eleven shillings 
and fourpence were paid for what was, in the eco- 
nomic view, not necessary, and, in the sanitary view, 
not beneficial. If we estimate the amount expended 
for luxuries by the corresponding class in our own 
country, we shall find it as much greater as nature 
is more liberal, labor more free, taxes lighter, and 
the working-man more ambitious and sanguine; 
while, if we turn to France, we find the proportion 
much smaller; yet even here the laborer has his 
holiday, and his theatre or fair. 

Paradoxical as it may sound, it may be said that 
a certain amount of luxuries forms a part of the 
necessary wages of the laborer in these countries. 
Indeed, it is true of all countries; for the human 



LUXURIOUS CONSUMPTION. 401 

mind and the human body will have rest and recre- 
ation in some form. Man is not all laborer. Some 
indulgence is the demand of that part of his nature 
which looks out on another field than production 
and accumulation. And in this light we see the 
vast importance of such social and moral influ- 
ences as shall determine the laboring classes to 
those relaxations and amusements which really 
refresh both mind and body, and elevate the whole 
t»ne of being. 

National taste determines, in a great measure, the 
demands of wages. It is only required, by our present 
object, that we take a good look at the luxuries of 
the poor; not by any means grudgingly. Indeed, 
we may ask why laborers are not everywhere allowed 
more time and means for enjoyment, outside the dull 
routine of work and the dry subsistence of life. It 
is a wise and Christian statesmanship that seeks 
to enlarge the simple pleasures of the poor. As 
the intelligence of laborers increases, and their 
political franchises extend, they will assert a larger 
share of the products of industry; and very much 
of this will go into what we call, not invidiously, 
luxuries. 

But it is with regard to the richer classes that the 
question of luxuries becomes especially important. 
The amount of wealth directed to these objects can 
hardly be over-estimated. 

The excise and customs authorities of Great Britain 
recently made an attempt to ascertain the shares of 
certain articles consumed, severally, by three classes 
into which they divided the population of the 

34* 



402 CONSUMPTION. 



kingdom, 
table :* 

Class. 

1st. Upper . 
2d. Middle . 
3d. Lower . 


The result 

Persons. 

. 1,000,000 
. 9,000,000 
. 18,000,000 


is shown in 

Tea consumed. 
17J per cent. 
38 " 
44J « 

100 


the following 

Sugar consumed. 
22J per cent. 
38 " 
39J " 

100 




28,000,000 



In these simple articles, which are almost included 
in the strict necessaries of life, we see the great ex- 
cess of the expenditure of the upper classes. When 
we rise to take in services of plate and sets of jewelry, 
galleries of pictures and parks of deer, studs of horses 
and packs of hounds, we shall be impressed with the 
immensity of outlay devoted to the luxuries of 
society. 

1st. What are the causes that set wealth apart for 
luxury? 

(a) The most essential is the existence of a surplus. 
Other things equal, the degree of luxury will be as 
the surplus. The latter, however, will depend not 
so much on the general mass of wealth as on its 
apportionment among producers. 

(b) The desire to gain and the desire to spend are 
antagonistic. They meet in every act of life, and 
one or the other must have its way. Luxury is the 
victory of the latter passion. The mere possession 
of a surplus is not enough. 

2d. To what extent can wealth be devoted to 
luxury? 

Gibbon gives countenance to the theory, that no 
state can, without soon becoming exhausted, sup- 

* Levi on Taxation. 



LUXURIOUS CONSUMPTION. 403 

port more than a hundredth part of its population in 
arms and idleness. This is to be understood as a 
hundredth part of the population, taken out of the 
able-bodied males; say, a twentieth part of these. 
The estimate is interesting, and has a certain share 
of truth; but its form shows it to be a very rude 
one. Does it make no difference whether this 
portion is simply unproductive or destructive? 
Does it make no difference whether these idlers are 
maintained in the dreamy, half-naked indolence of 
Asiatics, or in war and the luxury of courts? no 
difference whether the general production of the 
country is large or small; whether the wants of the 
people and the necessities of government are few 
and simple, or many and great ; whether rice enough 
for a year can be had by the labor of two weeks, as 
in India, or a bushel of grain costs the labor of 
eleven days, as in Lapland ? 

It is in this light that we see the impossibility of 
fixing, for all nations, all climates, all ages, a com- 
mon proportion of luxury that can be maintained, 
without bringing down the standard of industrial 
well-being. At the same time, it is plain that for 
each nation, at any time, there must be a point be- 
yond which wealth cannot be spent in enjoyment, 
or time in idleness, without first oppressing the 
laboring class by hard exactions, and afterwards de- 
basing the entire state. 

OF LEARNING AND ART. 

These, in the economic view, may have value, and 
so may be produced, exchanged, distributed, and 
consumed. The reward they receive, the price they 



404 CONSUMPTION. 

bring, is in no sense due to them in their own right, 
because they are true, beautiful, or good; but arises 
legitimately out of the desires they gratify, and the 
labor they cost. It is the appreciation of a service 
rendered. That reward will vary in form and de- 
gree, at every stage of society. 

While the rewards of learning and art are uncer- 
tain, and apparently wayward, they have yet, from 
the earliest days, had a place with the most substan- 
tial industries. Whatever may be true of the quality 
of such productions, the amount of labor bestowed 
on them obeys strictly the same laws of supply and 
demand which govern the growth of cotton or wheat. 
Economical science has no occasion to take them 
out of the same category. When one man gives 
his efforts to any work of this character, and finds 
one other who has a desire for it, that work begins 
to have value, comes hereby into the domain of 
political economy, and must submit to its principles. 
Milton, chaffering for the price of " Paradise Lost," 
forms no royal exception to the sovereignty of the 
empire he has entered. 

What is the character and effect of such consump- 
tion ? This is a question doubly interesting, having 
an importance to general scholarship, as well as to 
our immediate science. Of course, learning and 
art have not necessarily to establish an economic 
usefulness, in order to justify their pursuit. In their 
own names, they have sovereignty, and claim hom- 
age. But there is an economic relation which we 
cannot overlook, and which must affect, somewhat, 
the place which they shall be accorded in the world. 
In brief, their effect upon industry may be defined 



LUXURIOUS CONSUMPTION. 405 

as follows: So far as they give dignity to human 
aspirations, furnish new objects to human desires, 
enlarge ambition, develop the useful sciences, and 
suggest the application of new powers, as the tele- 
graph, the locomotive, and the magnet; so far as 
they unite and harmonize social and political divi- 
sions,— they are of inestimable value; and such 
consumption of wealth as rewards and encourages 
them is seed thrown into a soil more grateful than 
any land of fable or story. But so far as learning 
and art tend to produce that unmanly sentimentalism 
which shrinks from dry details, present duty, and 
simple fact; that mawkish cosmopolitanism, which 
weakens each nationality, without promoting the 
union of all ; that softening of the mental fibre, 
that dissolution of the will, which makes man the 
slave of his circumstances, and even of his fellows; 
and, worst of all, that selfish fastidiousness which 
shuts itself in from human activities and social alli- 
ances, to dwell in dreams and idle imaginations, 
whether of philosophy or art, — w 7 hy, in so far, we 
must call such an employment of time and labor, 
not merely unprofitable, but mischievous, consump- 
tion. 

SUMPTUARY LAWS. 

No subject stands so peculiarly related to scientific 
inquiry as this. There is no scheme of govern- 
mental action which can present a more clear and 
convincing argument, drawn from the nature of 
things, and even from experience, prior to actual 
legislation ; while none has been more effectually 
exploded by trial. There seems to be a perfect 



406 CONSUMPTION. 

reason for sumptuary laws ; yet the general sense of 
civilization has, after full experiment, settled deci- 
sively against them. 

It is impossible to look about the smallest com- 
munity, without being grieved at the manner in 
which much of its labor and wealth is expended. 
What enlightened person can pass once through any 
street of human habitation, without seeing very 
many instances of folly, extravagance, perversion, 
and indolence, which are wasting the best gifts of 
God and the fairest hopes of man ? And, when this 
view is carried out to all the communities of a nation, 
it is not strange that philosophers and statesmen 
have come to believe most earnestly, that by salu- 
tary curbs on expenditure and spurs to exertion, by 
reforming dress, diet, equipage, and establishment, 
they could multiply manifold the comforts of the 
people, the resources of the state, and the means of 
social and moral culture. 

And yet nothing has more utterly and conclu- 
sively failed. It is not that the evil is imaginary; 
for enough wealth and power are wasted to make 
every human being comfortable and happy. It is 
not that the state of things is unsusceptible of re- 
formation; for the matter is one wholly of human 
choice, and open to the control of the public 
sanctions. 

Why, then, has law, acting to this end, failed of 
its purpose so universally and so manifestly, that 
such enactments are hardly ever proposed at the 
present day, even by the most sanguine of philan- 
thropists ? 

It is difficult to give a full and satisfactory expla- 



LUXURIOUS CONSUMPTION. 407 

nation. One reason is, that such enactments are 
very easy of- evasion. Expenditure is not a matter 
that submits readily to inspection and proof. The 
interest of the producer and of the desire of the con- 
sumer are against the enforcement of the law. Then, 
again, luxury can take on so many forms, can slip 
so readily from the grasp of definitions and specifi- 
cations, that the law becomes a greater trouble to 
its officers than to its offenders. 

The grand reason, however, is that it is against 
human nature; and with this we may fairly close 
our objections. 

But all these furnish no conclusion against the 
regulation of public morals and manners in things 
that affect the happiness and safety of the commu- 
nity. It is no longer legislation to supplement the 
wisdom of the individual or instruct industry. It 
becomes the defence of the general good. It is not 
a breach of personal rights, but the safeguard of 
public liberty. If there is any habit or practice 
which brings disease and suffering and disorder, 
which abridges the power of labor and the span of 
life, which inflicts misery upon the innocent and 
unoffending, which entails expense upon the whole 
community for the charge of pauperism and the pun- 
ishment of crime, there can be no doubt of the right 
and duty of the people to protect themselves, through 
the power of their government, by the most severe 
and efficient laws that can be devised. To deny this 
is to deny the validity of government itself. 



408 CONSUMPTION. 



PUBLIC CONSUMPTION. 

There is an economical reason for government. 
Without the strong arm of the public force, men 
could not work unmolested, or retain the results of 
their labor. Without law, production would be hin- 
dered directly, by the confusion of society and the 
interruption of violence. But far more serious would 
be the secondary effects on industry. All motives 
to the accumulation of wealth would be withdrawn, 
by the insecurity of property. Its possession might 
even become an object of terror. 

To what share is government entitled in the gen- 
ral production ? If, as we have seen, it is the indis- 
pensable condition of all wealth, it can rightfully 
claim a part of all wealth ; and that part will be, at 
the least, enough to sustain itself in this economical 
function. It owns just as much of this wealth it has 
helped to create as is necessary to continue itself; 
for, without this, wealth could not be. The absolute 
necessities of government, then, afford the minimum 
measure of its share in wealth. 

Has government no right to more than what is 
essential to its support in this economical function ? 
Its industrial work embraces a wider field than ap- 
pears in the simple statement. In America, educa- 
tion is required as a part of the public police ; and 
onr eminent statesmen have estimated the outlay of 
schools and colleges cheap, in the results on order 
and security. Government may employ means of 
influence, numerous and remote, all in the interest 
of peace. 



PUBLIC CONSUMPTION. 409 

But has it no right to property beyond this ? 
Plainly it has. We must not be as stringent in our 
scientific views as young Gobbo, and complain that 
" this making of Christians will raise the price of 
pork." Political economy recognizes that humanity 
has other interests than wealth, and respects the 
claim of government to duties and services for the 
sake of a moral good. 

Having defined the right of government econom- 
ically to participate in wealth, two considerations 
naturally precede the discussion of methods : 

1st. Government should undertake nothing that 
can be accomplished by individual enterprise. 

If we admit that the difficulties which surround 
industry &re imposed for our good, and form a part 
of our discipline and culture, political society pal- 
pably acts on a false idea when it relieves the citizen 
of his own proper responsibility, care, or labor, and 
assumes his natural duties. This, however, is not 
the only reason against such interference. Govern- 
ment never does the work of individuals as well as 
it can be done by individuals. 

It cannot be too often or earnestly insisted on, that 
individual, interested supervision is the grandest 
economical condition, and should never be departed 
from till the work becomes too vast for single hands. 

2d. Government should do nothing for display. 

For ages the science of politics might be summed 
up in the word " pageantry.'' To dazzle the vulgar 
eye, and overawe the common sense of the people, 
by splendid equipage and stately building, has been 
the main theory of rulers. The system certainly has 
not failed for want of trial. There have been gov- 

35 



410 CONSUMPTION. 

ernors who wisely sought to prove that the power 
of the law and the peace of the subject did not 
depend on show. The simplicity and austerity ex- 
hibited by Carus of Rome, Julian of Constantinople, 
Elizabeth of England, the Great Frederick of Prussia, 
and the Saracen caliphs in all ages, stand in marked 
contrast with the wicked and ruinous extravagance 
that has marked the administration of most* of the 
governments of the world. 

3d. The expense of government will vary accord- 
ing to the circumstances and character of the people. 

Some peoples have a government as simple, primi- 
tive, and cheap as their clothing; while others, no 
more highly civilized, manifest an inclination to 
complicated and refined forms of administering law, 
which bring a heavy burden of taxation on the 
present, and entail permanent debt on posterity. 
Some nations surround themselves with fortifica- 
tions, and maintain extensive forces, just as some 
countries can keep out the ocean only by artificial 
dikes and levees ; others have a natural strength, or 
an isolation, that is as good to them as strong armies. 

Russia spends yearly three dollars a head in gov- 
erning her people and supporting her armies ; 
Prussia, five dollars ; the United States, up to 1860, 
two and a half dollars, reckoning only the federal 
establishment; Great Britain runs her expenditure 
up to ten dollars. Political economy has great 
charity for claims based on public considerations. 
It allows that whatever is really necessary for peace 
and order and property, in full view of the national 
peculiarities or geographical difficulties, is economi- 
cally well spent and a good investment of 6apitaL 



CHARITY AND POOR-LAWS. 411 

Yet government charges heavily for what it does. 
The expenditure of the United States, even if no at- 
tempt is made to liquidate the public debt, will not, 
probably, be less than three hundred millions ; and 
this, exclusive of all the service of State and muni- 
cipal government. 

On the whole, it may be said of this duty of capi- 
tal to support government, that it pays, as an invest- 
ment, whatever it may necessarily cost ; but that the 
expense should be strictly held down to the lowest 
practicable figure. 



CHAPTEE III. 

CHARITY AND POOR-LAWS. 

In the United States, the question of charities has 
not that engrossing interest which it commands 
among the older peoples of the world. Land here 
is so cheap, labor so much in demand, that no able- 
bodied >man has any excuse for pauperism. And 
even many of those disabled by severe accidents are 
yet competent to earn something for livelihood, in a 
country where every hand is wanted for work. It 
is probable that the pauperism of the nation is not, 
in ordinary times, equal to one-half of one per cent, 
of its population ; while England and Wales had, 
in 1859, four and a half per cent. ; Holland, in 1855, 
eight and a half; Belgium, in 1816, sixteen; East 
and West Flanders rising that year to thirty per cent. 



412 CONSUMPTION. 

The methods of charity have not, therefore, the 
same importance with us which they bear elsewhere. 
It is a matter of profound concern with others, that 
pauperism should be in every way discouraged, and 
that what of it is necessary should be as cheaply 
arranged as possible. Here, the only occasion for 
anxiety is, lest some unfortunate should be over- 
v looked in the general prosperity of the country. It 
will not, however, be without interest and instruc- 
tion to regard carefully the practical principles which 
should govern the administration of charity. 

1st. What classes are entitled to charity ? 

Manifestly all who are unable to subsist in common 
decency without it. 

But should government provide nothing for those 
who, having wantonly wasted their means and gifts 
of labor, find themselves, and those dependent on 
them, suffering for the necessaries of life ? We 
answer, that the liberty of the subject is not a 
privilege to become a pauper; that government has 
the right to protect itself; that it may, by stringent 
enactments concerning vagrancy and indolence, an- 
ticipate the operation of such causes; that it may 
encourage industry by rewards, or compel it by pains 
and penalties ; that it may apply to vicious pauper- 
ism the same severity as to crime. Yet, when all 
this is granted, and all this done, there will still re- 
main a certain degree of physical want, the result 
of sinful and slothful habits. Of this the state must 
have charge. 

2d. Who should administer charity ? 

An argument might be made from the principle 
of benevolence and the sensibility to another's dis- 



CHARITY AND POOR LAWS. 413 

tress found in the constitution of our nature, that 
charity was not alone designed for government, but 
that the relief of the poor is appropriate to private 
hands. And there is a plain, economical reason, in 
that such contributions can be made more timely, 
more judiciously, and more cheaply, by the offices 
of individuals than by public agencies. There is a 
further reason, not less economical than moral, that 
assistance rendered in this form does less hurt to the 
feelings of the recipient. The interests of produc- 
tion, not less than the law of kindness, object to 
the unnecessary lowering of the self-respect of any 
class or person. To accept charity from a neighbor, 
under the pressure of extraordinary misfortune, 
could impeach the honor of no one; but to take 
bread from government carries with it a sort of 
taint of beggary through life. 11 

Here, then, in individual contributions, we have 
one of the main instruments by which the relief of 
the poor should be effected. 

There is another class of voluntary agencies, 
standing between individual charity and that of the 
state, consisting of mutual-relief societies and trade 
associations, established for the purpose of assisting 
their members over the rough places of life. When 
honestly formed, and held to their legitimate work, 
they have, economically, all the advantages of divi- 
sion of labor. With this they unite a considerable 
share of intelligence, as to the special deserts of 
applicants. There is also, and principally, the con- 
sideration, that relief from this source is thought to 
have nothing degrading, and so preserves the self- 
respect of those who receive the aid, 

35* 



414 CONSUMPTION. 

Yet all these methods cannot be relied on, by 
themselves, for all times and at all places. The 
state should assume the responsibility and control 
of the poor everywhere. It is a part of the national 
concerns that no subject shall suffer from want. 
After all that individual and associated charity can 
do, there will be an immense amount of the most 
repulsive and unroman tic want and misery awaiting 
remedy by government. 

3d. By what branches of the government should 
public charity be administered? 

We answer, that, in the mere relief of poverty, 
local authorities be charged with the dispensation, 
though the state may, and indeed should, compel 
them to do it, and perhaps regulate the degree and 
manner of it. Wherever a pauper has his residence, 
there he should receive whatever assistance he is to 
have. More work can be got out of him, his char- 
acter and claims will be better understood, he w T ill 
be nearer to returning into the condition of self- 
support, and each community will have an active 
interest to diminish its pauperism. All this is addi- 
tional to the greater expense of monster workhouses, 
and the corruption they are sure to breed. 

We said, " in the mere relief of poverty." But 
government charity has to do with other classes 
with which the rule of assistance is directly oppo- 
site. Hospitals for the disabled, asylums for the 
insane, schools for the blind, — these should be 
aggregated to secure the best scientific treatment 
and the greatest natural advantages. 

4th. To what extent should charity be given? 

To the full extent of the necessities of the sub- 



CHARITY AND POOR-LAWS. 415 

ject. The destitute, whether maintained in their 
own homes or in public institutions, should be 
required to do all the work they are able to per- 
form. This is just; for the government has the 
right to diminish its own burden. It is kind; be- 
cause, by keeping up their habits of industry, it 
preserves self-respect and bodily vigor, and may in 
time enable them to return to a condition of self- 
support. To render any more assistance than is 
really necessary, is not to relieve pauperism, but to 
encourage it. 

Poor-laws may be effective, to the full extent, in 
providing for all pauperism that results from natural 
or accidental disability of body or mind for self- 
support. Government may relieve every form of 
such distress with entire satisfaction of the individ- 
ual need, and with perfect justice to the community. 
But as soon as the necessities of a people bring 
able-bodied workmen within the scope of poor-laws, 
it is certain that, while temporary relief should be 
afforded, the remedy must be sought elsewhere. 
The reason is as follows : Charity to the disabled is 
simple gratuity, wholly outside the laws of value, 
and involving a definite expense ; but charity to the 
laboring class is an absurdity, only explained by the 
wickedness of human institutions. It is an absurdity 
liable to indefinite repetition. It indicates that the 
point has been reached below which oppression and 
greed cannot go. Poor-laws, permanently embracing 
in their charity able-bodied workmen, simply show 
that the gratification was long since abandoned ; that 
comfort was afterwards denied by oppressive require- 
ments or restrictions ; and that now the lowest plane 



416 CONSUMPTION. 

of injustice has been reached, in the inability of the 
laborer to support himself. There is no further de- 
scent; nor have poor-laws any virtue to bring back 
the right order of things. The great, the sole, regu- 
lating principle of economical life, viz., the entire 
self-sufficiency of labor, has been destroyed; and 
nothing but laws returning labor to its own full 
rights, not affording it charity, can restore health and 
harmony. 'There is no proper ground for charity 
v/* but the inability to labor; and, when under the stress 
of government injustice and social falsehood, it de- 
parts from these limits, it begins a wandering that 
has no end. The pauperism of America is the re- 
sult of accidents, and expires with its special causes. 
The pauperism of Europe is the effect of system, 
and perpetuates itself.** 

5th. In what spirit should charity be adminis- 
tered ? 

In that of kindness and respect. No condition of 
life and character is so abandoned that it needs or 
deserves that marks of ignominy should be attached. 
When the murderer, with his bloody hands, is to be 
executed, the sentiment of the community shrinks 
from the idea of adding insult to his doom. He is 
treated among no magnanimous people with con- 
tumely or outrage. If his manhood is respected, 
even in his crime, should not those who are the vic- 
tims of misfortune, or at the worst of only passive 
vices, be free from more than the disgrace which is 
necessary to their condition ? It is unchristian, it is 
cowardly, to insult by word or badge the unfortu- 
nates of society. No true man will do it : no brave 
people will allow it to be done. 



THE FINANCE OF WAR. 417 

Yet there should be no weakness or paltering in 
charity. While all harshness and contumely are 
avoided, public maintenance. should never be made 
desirable to the able-bodied workman, nor should 
even the feeble be allowed to escape just so much 
of labor as their condition permits. This is justice 
to the community, and kindness to the unfortunate. 
Especially should the public sense discourage and 
banish that shameless and obtrusive medicancy by 
which the bold and bad snatch away the portion of 
the weak, the honest, the retiring poor. The truly 
helpless and suffering should be sheltered under the 
wings of charity; the indolent and wasteful, driven 
out into the storms of the world. 



CHAPTER IV. 



I. THE FINANCE OF WAR. 



The finance of w r ar is greatly perplexed to the 
popular mind by one fallacy, w 7 hich is, that a vastly 
greater amount of money is needed in time of war 
than of peace. Bewildered by this notion, than 
which none can be more absurd, the public are 
easily induced to sanction a whole class of measures 
that would be generally recognized as injurious in 
ordinary times, but are imagined to have some virtue 
to bring out a greater amount of money to meet the 
supposed emergencies of war. The truth is, if we 



418 CONSUMPTION. 

suppose no extra importation of foreign material 
for consumption (and nineteen-twentieths of the ex- 
penditures of all wars are for domestic labor and 
material), there is no larger production, no more 
commodities to be exchanged, no more services to 
be rewarded, and consequently no more occasion for 
the use of money. 

But government now becomes the great operator, 
employs perhaps ten times its usual number of 
agents, expends ten times its usual resources. It 
then has need of more money : but as it only takes 
the place of former employers, of former consumers, 
so it only needs to take their place in the receipt of 
money; and that may be effected by prompt, equal, 
and thorough taxation, — taxation, too, conducted by 
the established methods, and in accordance with such 
principles as we have laid down. A state of war, 
therefore, instead of being, as it is usually made, a 
reason for departing from the ordinary rules of pub- 
lic economy, is an additional reason for adhering 
closely to them in every particular. 

War is a business as much as agriculture. The 
same resources are necessary : there must be mate- 
rials, provision, tools, labor. This is all that is 
needed in either; nor is there the least difference in 
the two, considered as modes of production : their 
principles and methods are the same. It is only 
when considered as modes of consumption that they 
have separate relations to the science of wealth. 
" Raising money" has been generally accepted as 
the great business of a nation in war; but it is no 
more so than in ordinary times. What is wanted are 
labor, tools, provision, and materials : these are what 



THE FINANCE OF WAR. 419 

must be " raised." And at least an equal amount, 
though of different kinds and for different purposes, 
is " raised'' every year or day of peace. Govern- 
ment, however, is now the great employer ; and, as 
it is to furnish these, it must get them from the com- 
munity which has them, and has been operating 
them. 

Indeed, war might be carried on without money ; 
has been, to a great extent. The state might always 
fill, as it often has filled, its armies by conscrip- 
tion; its granaries, by a tax in kind; its arsenals, by 
compulsory labor. The greatest armies the world 
has ever seen were raised, supported, and disbanded 
without a money chest. In the advance of civiliza- 
tion, it has been found more expedient, as it is more 
just, that government should purchase all it con- 
sumes in war, obtaining the means in money by tax- 
ation. As war does not increase the number of 
laborers or augment their power in production, it 
remains true that there can be no greater occasion 
for the employment of money, whose only office is 
to exchange the products of labor. 

It may be thought that if foreign labor (as mer- 
cenary soldiers) or foreign material (the products of 
foreign labor) is introduced, there will be a greater 
demand for money to make the exchanges of services 
and values. Of the first, it may be said that the 
employment of mercenaries is, in fact, too small to 
be of any account in the great calculations of war- 
like expenditures. The latter is of importance, but 
really forms a small fraction of the actual outlays of 
w T ar, probably not equal to the reduced wages of 
domestic labor in arms, as against the same labor in 



420 CONSUMPTION. 

peace; it being true of almost all armies, that their 
pay is below the average of industrial occupations. 
But, if we allow all the actual importation of foreign 
materiel to be so much added to the necessity for 
money, the effect will be simply what has been 
already indicated in the philosophy of currency. 
Money will be exported up to a certain point to pay 
for imports: this will lower home prices, diminish- 
ing the domestic expenditures of government, and 
encouraging the export of produce, which will con- 
tinually tend to restore the balance. Beyond the 
point at which money cannot be sent off, without 
domestic distress, government must resort to credit 
by loans. Such loans, however, cannot increase the 
money in the country ; for, even if they first assume 
that form abroad, they are turned into materiel before 
imported. 

This discussion, it should be borne in mind, has 
only regarded the amount of money required in war. 
"We have had nothing directly to say as to the 
amount of capital employed. Of this we express no 
opinion; while we maintain that it is unquestionably 
true, that no greater volume of money is needed to 
effect all the exchanges incident to a state of war. 



ECONOMY OF THE WAR SYSTEM. 

War is the greatest fact that presents itself in this 
part of our general subject. Its consumption, its 
expenditures, are wholly for unproductive purposes, 
and not only unproductive, but absolutely destruc- 
tive of those by whose labor wealth is produced. 



ECONOMY OF THE WAR SYSTEM. 421 

War demands by far the largest part of all the re- 
venues of civilized governments throughout the 
world. It therefore claims consideration as far as 
our limits will permit. 

That war is a political necessity while no prepara- 
tion is made for preserving peace, cannot for a mo- 
ment be denied. So also were private combats and 
the wager of battle in by-gone ages. Disputes will 
ensue between nations as between individuals ; and, 
if no provision is made for umpirage or arbitration, 
a resort to the sword is inevitable. Hence the great 
system of war. But for established laws and courts 
of justice, individuals would, of necessity, be com- 
pelled to seek redress for private grievances by an ap- 
peal to brute force. This would not, indeed, determine 
which of the parties were in the right, only which 
was the stronger or more fortunate in the struggle. 
So of nations. When differences arise between 
them, how can they be settled except by a trial of 
strength ? There is no well defined, well-established 
code of international law; there is no tribunal of 
international justice: how then, except in battle, 
can their disputes be adjusted? It is a well-estab- 
lished principle, that a man should not be a jadge 
in his own case; and therefore, as between indi- 
viduals, it is decided that, instead of the wager of 
battle, the aggrieved party shall submit his case to 
the arbitrament of his fellow-citizens. But, as be- 
tween nations, no such arrangement has as yet been 
made. 

Hence we are to contemplate war as a political 
necessity, until the nations of the earth shall estab- 
lish a code of international law, and institute a high 

36 



422 CONSUMPTION. 

court of appeal, to which their disputes shall be re- 
ferred for adjudication. 

War, then, in the sense in which we are to look at 
it, is not an accidental fact, but an established sys- 
tem; and, as an economical question, is to be re- 
garded from three different points of view. 

1st. As consisting of a permanent military force, 
a standing army, with all the paraphernalia of war; 
and, if the nation be maritime in its position, a naval 
force, somewhat proportioned to its military estab- 
lishment. 

2d. A system of constantly increasing preparations 
for war, — arsenals, dockyards, and manufactories. 

3d. A heavy indebtedness for wars of the past, 
with unceasing taxation for the payment of accruing 
interest and the extension and perpetuation of the 
system. 

These three items may be said to constitute the 
war system of the civilized world at the present day. 
Looking at war in its economical bearings only, the 
great feature that presents itself is the immense and 
constantly increasing expenditures it requires. 

In proof of this, we first refer to the statistics of 
Great Britain, not because they are peculiar, but that 
they are full and reliable. Her naval and military 
expenditures from 1815 to 1865, during which period 
of fifty years there has been no protracted war, have 
been £1,084,330,507, equal to $5,000,000,000, or twice 
as much as the whole present debt of the United 
States : from 1855 to 1865 inclusive, £769,612,936, 
of which £301,618,920 were required to pay interest 
on the national debt; £331,887,258 for current ex- 
penses of army and navy ; for the cost of collection, 



ECONOMY OF THE WAR SYSTEM. 423 

£48,738,823 (or about six per cevit. of the whole reve- 
nue); and only £105,472,935 for all the expenses of 
civil government. So that, in paying interest upon 
the debt wholly created in war and in meeting 
present expenses, the war system swallowed up six- 
sevenths of the entire revenue. And that which is 
true of Great Britain is to nearly an equal extent 
true of France and almost every nation of Europe. 

The armed forces of Europe now (1871) are sup- 
posed to be equal to near five millions of men, all 
told, and the grand total of war debts some fifteen 
billion dollars. 

Another important point to be noticed in relation 
to the war expenditures of European nations is, 
that they have been constantly increasing, and at a 
fearful rate. 

The increase of taxation in England between 1863 
and 1865 was fifteen millions sterling per annum 
over the previous decade. The cost of the army, 
navy, and ordnance combined, in 1835, was less than 
twelve millions; in 1850, it was fifteen millions; in 
1861, it had increased to thirty millions sterling. 

Between the years 1842 and 1853, the income of 
the wealth of Great Britain was at the rate of twelve, 
and her expenditures were at the rate of eight 
and three-quarters, per cent. ; while, between 1853 
and 1859, the national wealth grew at the rate of 
sixteen and a half, while the national expenditure 
was at the rate of fifty-eight, per cent. 

France is almost crushed under the excessive 
burden of debt which her vast military system and 
the disastrous results of her late struggle with Prus- 
sia have entailed upon her. 



424 CONSUMPTION. 

IS WAR A MORAL NECESSITY ? 

We have said that, under existing circumstances, 
war may be a political necessity; but is it a moral 
necessity ? Is there anything in the nature of man 
which makes the destruction of his fellow-men in 
war unavoidable? Is it not as feasible and as con- 
sistent with his nature to dispense with appeals to 
brute force among different communities, as be- 
tween different individuals in those communities ? 
Would not the same principle, the same common 
sense, which establishes a court of justice for the 
settlement of private disputes, establish a similar 
tribunal for the settlement of international differ- 
ences ? If it is indispensable to the preservation of 
peace among individuals, that there be a well- 
defined code of laws, which all may understand, and 
all must be required to obey, is it not equally indis- 
pensable among different communities ? 

At present, as we have said, there is no established 
code of international law, or any common tribunal 
for the settlement of international disputes. Is the 
attainment of these admittedly important objects 
practicable? In what manner can they be secured? 
Evidently in the same way in which all social insti- 
tutions are formed; viz., by the voluntary, harmoni- 
ous action of those who are directly concerned. And 
this can only be secured by concerted and concen- 
trated effort. This is a necessary preliminary. Is it 
feasible? Can the human mind achieve this ad- 
vanced step to a higher condition ? 

We answer these questions, without hesitation, in 
the affirmative, and for the following reasons : 



ECONOMY OF THE WAR SYSTEM. 425 

First Because the present system is at war with 
the plainest dictates of common sense, and the high- 
est interests of mankind. 

It may be safely assumed, that any system, policy, 
or practice which, in the course of events and the 
lapse of time, has become, not only absolutely use- 
less, but positively pernicious and absurd, cannot 
long continue ; that the advancing tide of intelli- 
gence will sweep it away as the rubbish of the past. 

Each nation, as we have seen, has its standing 
army, its navy, fortifications, dockyards, arsenals, 
etc., etc.; and, consequently, each is endangered by 
the military and naval preparations of every other, 
and they live in constant mutual jealousy. Hence 
there is an unceasing competition. One nation adds 
to its naval and military armaments because, and only 
because, the other does, and still both are as relatively 
defenceless as ever. This is, and has long been, the 
universal European policy : yet is it not irrational? 

Secondly. Because the changes which are con- 
tinually taking place in the machinery of war are 
so great and frequent as to forbid all hope that 
nations can ever be fully prepared for war. What 
terrible engines of destruction, what unheard-of 
forces, are yet to be brought into use for the de- 
struction of mankind? The mind stands aghast at 
the awful possibilities of the future, if the present 
senseless and inhuman competition in war prepara- 
tions is to be continued. The moral sense of the 
world revolts at the thought of such stupendous 
folly and crime. 

A third consideration which leads us to expect 
that the present war system will be superseded by a 

36* 



426 CONSUMPTION. 

general confederation for the preservation of peace 
that all the si influences of the age are against its 
barbarities. 

(a) Commerce, as well as common sense, makes a 
strong plea in favor of peace. Extending with al- 
most inconceivable rapidity, its influence is every 
day advancing, and its interests becoming more 
identified with the harmony of nations. 

(b) The rapidly increasing intercourse by travel 
between the different peoples is making them more 
acquainted with each other, and dissipating much of 
that ignorance and prejudice which, in times past, 
has been a prolific source of jealousy and distrust. 

(c) The education of the masse3, their gradual 
progress in knowledge, and their growing influence 
in public affairs, is another very hopeful indication. 
The people are being enlightened, and are becoming 
too "wise" to be made the dupes of a system of 
which they are the greatest victims. 

But our fourth reason for expecting that the great 
object of disarmament will be accomplished, arises 
from the consideration that public sentiment has 
been evidently turned in that direction for the last 
fifty years, and much has actually been done towards 
bringing the subject directly before the different 
nations. 

Associations have existed for a long time, whose 
object has been to bring about permanent and uni- 
versal peace ; and one of the prominent measures 
insisted upon as necessary to this end, has been a 
congress of nations. And lastly, we hope much 
from the pacific settlement now in progress between 
Great Britain and the United States, by which dis- 



ECONOMY OF PUBLIC EDUCATION. 427 

putes of the gravest character have been submitted 
to peaceful arbitration. The Treaty of Washington, 
under which this has been brought about, forms a 
new era in diplomacy ; and the court of arbitration 
now assembling at Geneva establishes a precedent 
that we may reasonably anticipate will hereafter be 
accepted for the honorable adjustment of differ- 
ences between independent sovereignties, however 
great and powerful. 



CHAPTER V. 

ON THE ECONOMY OF PUBLIC EDUCATION. 

It is difficult for Americans to sympathize in the 
least with the objection which is made in England, 
even by those distinguished for liberal sentiments, 
that compulsory education is a breach of the liberty 
of the subject. Our incapacity for understanding or 
even respecting that sentiment arises from the fact 
that such education was early made one of the foun- 
dations of our social and political organization, and 
w r e have grown up to regard it as an accepted prin- 
ciple of good government. Our intolerance of the 
English theory, however, is not helped by the con- 
sideration that the support of a particular religion 
is made compulsory by the British government. 

The economic results of public education are 
manifestly in two directions. 

1st. It is intended to effect the prevention of pau- 



428 CONSUMPTION. 

perism and crime. To use a popular American 
phrase, "It's cheaper to build school-houses than 
jails." In looking at this matter, we need to take 
a view between that of the optimist who expects the 
extinguishment of sin and vice by the advance of 
knowledge, and that of certain grossly material phi- 
losophers who compose statistical tables to prove 
that general enlightenment rather encourages crime. 
The first notion is refuted by sad experience. We 
may fairly decline to consider the second till it re- 
receives the sanction of one practical statesman. 
Such is the theory of our government on public 
education. 

2d. Public education is intended to bring about, 
positively, a higher economical condition. 

It is mind that gives man power over the brute 
creation ; and it is by enlarging and instructing the 
mental power that the greatest possible factor is 
introduced into his effort. 

We do not speak now of the education of the la- 
borer in art and science for their own sake, but solely 
for his advancement as an individual being; nor do 
we refer to the indirect influence on social order 
and national power, enlarging the desires, stimu- 
lating the activities, and promoting the frugality of 
a people. We allude only to the education of all 
w T ho labor, whether as masters or apprentices, invent- 
ors or drudges, governors or soldiers, in order that 
they may more intelligently and efficiently discharge 
their parts in production. 

A It pays to do so. A few years of boyhood spent 
in practical studies has taken many a man out of the 
class of day laborers, and placed him among those 



ECONOMY OF PUBLIC EDUCATION. 429 

who superintend the work of hundreds, or by scien- 
tific discovery multiply the power of industry mani- 
fold. Nor is it alone in these marked cases that a 
fortunate result has appeared. It is perfectly prac- 
ticable in any country to raise the whole body of the 
people one distinct grade in industrial character; to 
make every hand and every eye more strong and 
accurate, while giving to each the repeating poiver 
of mind. 

It is not only demanded in the interest of a 
greater production, but also to secure a more just 
and uniform distribution of wealth. The more 
highly educated, industrially, the workman is, the 
firmer and apter resistance will he offer to the ag- 
gressions of capital or competing labor ; the higher 
will become his necessary wages, the more reason- 
able his remuneration. It is the poor man's share 
of wealth which, after all (while we respect the 
rights of capital for its own sake no more than for 
the welfare of labor), is the object of humane science 
and legislation. A great conflict between labor and 
capital is now imminent throughout the civilized 
world; but if there shall ever be a good and satis- 
factory solution of the great question at issue, it will 
be because the capitalist and the laborer have been 
alike educated to understand the laws of wealth, and 
the true relations between the two great competing 
but not antagonistic forces of production. 



430 CONSUMPTION. 



CHAPTER VI. 



POPULATION. 



The question of population has been invested, by 
the treatment of British writers, with great mys- 
tery and terror. The glut, famine, and death theories 
of Malthus have done much to impress upon politi- 
cal economy the shape it has to-day in the world's 
estimation. Rightly enough, if they are correct, is 
it called a dismal science. Malthus exhausted the 
direct horrors of the subject; but the effect was 
greatly heightened by the benevolent efforts of many 
subsequent writers to provide some way of escape 
from this fatal conclusion, — efforts which, as they 
resulted in palpable failure, only made the outlook 
of humanity more dreary and- hopeless. 

The fact is, all this British philosophy of popula- 
tion is perverted and diseased from its root. It 
comes out of social wrongs and false political insti- 
tutions. It strives to apply, as a universal condition 
of human being, the miserable results of local mis- 
rule. Prior to all consideration of such arguments, 
there is reason to suspect theories of subsistence and 
population that come from an island where holdings 
of land are only as one to six hundred or seven hun- 
dred inhabitants. 

These principles are intended to apply to the en- 
tire surface of the earth, and have no merit unless 
capable of such extension ; but, to give them their 



POPULATION. 431 

most favorable conditions, we will first consider a 
single district of limited area, — say, England itself. 

Two postulates are often assumed : 1st, that sub- 
sistence is stationary or retrogressive ; 2d, that 
propagation is a constantly operating force, enlarg- 
ing population in some assignable ratio. The infer- 
ence is, that the relation of these two must bring 
out destitution and famine. 

There are here three fallacies: 1st, that subsistence 
is not progressive; 2d, that population necessarily in- 
creases; 3d, that, even if these were granted, there 
would exist between them any such melancholy re- 
lation as is assumed. 

1st. Subsistence. — The fertility of the earth, in- 
stead of diminishing, is, under intelligent culture 
and w T ith the aids of science and machinery, con- 
stantly increasing. The advance of industrial power, 
in commerce and manufactures, not only furnishes 
direct assistance in agriculture, but releases, if re- 
quired, a great amount of labor for the latter pur- 
suit. As is the amount of labor applied to land, so 
is the yield the world over. The England of to-day 
is vastly more fertile than that of the Heptarchy, 
the Norman conquests, or the civil wars. 

2d. Propagation. — The rule of geometric increase 
is a favorite weapon in the defence of certain 
theories; but it is wonderfully far from the truth of 
nature. Boys have frequently exhibited, on the 
blackboard, the immense wealth they could acquire 
if they should lay by a penny a day, at interest, for 
so many years ; and the result seems very alarming, 
as if that particular school would eventually become 
the owners of by far the greater part of the earth's 



482 CONSUMPTION. 

surface. So much for mathematics. But, in fact, 
some days the boys don't earn their pennies, and 
some days they don't lay them by, and some of the 
boys die; and perhaps the bank unfortunately breaks, 
or, after a few months of continence, a juvenile rush 
is made upon it, and all hopes of fortune disappear 
in a saturnalia of candy and ginger-pop. The illus- 
tration is plain and humble ; but it involves all the 
elements that limit the theoretic advance of wealth 
or population. 

Contemplating certain positive unquestionable 
facts in history, great instances of depopulation, ages 
of decline, the slow advances of reviving production, 
we may fairly begin to doubt whether propagation 
is a permanent force irrespective of conditions. We 
may not unreasonably inquire whether it ever ap- 
pears without a special reason in the case; whether the 
rule is not the other way; viz., not that population 
does not proceed in spite of adverse influences, but 
that it is never called out except by physical circu in- 
stances, which, in all their contradiction and bewil- 
derment to us, really form the condition precedent 
of human reproduction. Why not? We do not 
say that individual growth, either vegetable or ani- 
mal, is a constantly operating force, irrespeet'v i o ' 
circumstances. We recognize the necessity of heat, 
moisture, and special properties of soil to educe the 
latent powers of expansion. Similar, though more 
remote and perplexed, are the influences which bring 
out reproduction in the animal or vegetable. It i* 
therefore more correct to say that population, in 
stead of being limited by adverse, is only developed 
by favorable, conditions. We are deceived in this 



POPULATION. 433 

matter, siuce propagation acts almost universally. 
That happens simply because the favorable condi- 
tions are nearly universal. 

3d. The third fallacy we detect is, that, granted 
the two postulates of stationary subsistence and ad- 
vancing population in any country, there is any 
necessary relation of distress and deterioration be- 
tween them. Such a view puts commerce out of 
the question. In the present state of the world, 
the only matter of interest to determine in regard 
to the supply of any people is whether they are 
able to produce values sufficient to command in ex- 
change the commodities they must consume. It is 
of no consequence whether Manchester and Birming- 
ham can raise their own breadstuff's within their 
corporate limits, if they can create values which 
will lay all the markets of the world under contribu- 
tion. Labor, if law does not hinder, is self support- 
ing. The powers of industry are commensurate 
with their wants. But, if legal and social institu- 
tions interrupt or burden exchanges, in one way or 
another, distress will result. There is no fault in 
human propagation, but in what is subsequent. 

In England, bad laws, passed by class legislation ; 
oppressive institutions, the relics of feudalism ; oner- 
ous taxation, incurred by the senseless war system ; 
and unjust monopolies, created for selfish purposes, 
— have combined to cause the ignorance, poverty, 
and degradation of the people, and to make the 
beneficent agencies of reproduction a partial curse. 
The laborers of England suffer for the commonest 
necessaries of life, while England is the richest na- 
tion on the face of the globe. Unquestionably the 

37 



434 CONSUMPTION. 

value of the total production of English industry 
amounts to five times the value of the simple neces- 
saries of life for her whole population. Now, if 
labor starves, is it the fault of nature ? The density 
of population has nothing to do with it. It is be- 
cause the common people have so little influence 
on the government; because the land is held for 
the pleasures and dignity of the lordly few ; and 
because the national majority is borne down by a 
powerful, selfish, and grasping aristocracy. 

If now we extend our inquiry from England to 
the whole industrial world, we shall bring another 
element into the calculation, not to increase the 
chances of distress by over-population, but to di- 
minish them. Whatever may be true of individual 
peoples at any particular time, the general advance 
of population all over the earth has not been very 
clearly proved. But, whether it has taken place 
from century to century or not, it certainly has not 
progressed in the last five centuries at so rapid a 
rate as the means of subsistence ; nor is there any 
ground for believing that the present advance will, 
the world over, continue when the means of sub- 
sistence shall become stationary. There never has 
occurred a case of starvation in the history of the 
world which resulted solely from a deficiency in the 
natural means of procuring food ; and there is no 
reason to believe that there ever will be one. There 
have been countless millions of deaths from hunger 
occasioned by the destructiveness, envy, or heedless- 
ness of man, through war, commercial restrictions, 
or personal neglect. 

4th. The fourth cause which we shall notice is alto- 



POPULATION. 435 

gether different in its origin and character. The 
others have all been on the brutal side of man, oper- 
ating by misery and want. This works in alliance 
with the nobler part of his being, and is of a kind 
with reason. It is self-restraint. In a degree, in- 
deed, a great part of the world exercises this. The 
Chinaman will rear as manv children as he can find 
vermin for as food; but the Hindoo, through his re- 
ligious faith, stops short of all animal food, and 
limits population by vegetable subsistence. And so 
almost all nations have a point of decency below 
which they will not go. But the self-restraint of 
which we speak is of a higher kind, and begins to 
operate before the senses revolt in disgust or pinch 
in hunger. It is found wherever there is self-respect 
and social consideration. Hence the moderate in- 
crease of many countries where population main- 
tains a just proportion to the general wealth, taste, 
and customs. As this is a subject to which belongs 
illustration rather than analysis, we give at length a 
remarkable example, which will also enable us to 
set in contrast the operation of the other causes. 
We take the State of Massachusetts, of which, let it 
be observed, only a very small class is influenced by 
luxury, and a smaller class even affected by destitu- 
tion. Vice and misgovernment certainly work as 
little injury here as in any portion of the world. 

The annual registration, made with much care, 
shows the following result in regard to births among 
the native and foreign population in 1860 : — 

Native population, whole number of persons .... 970,952 
Foreign " " " " .... 260,114 

Number of births in native population 16,672 

" " foreign " 16,138 



436 CONSUMPTION. 

The number of births in the native population, to 
be in proportion to the foreign, should have been 
60,239, or nearly four times the actual number. This 
difference is still more remarkable in the census 
returns of 1870 : 

Whole population of the State 1,457,351 

Native population 1,104,960 

Total foreign born . . 352,391 

From the Registration of the State of Massachu- 
setts for 1870, we learn that the whole number of 
births was 38,259, equal to 2*62 per cent., viz.: 

Of foreign parents 18,339 

Of American parents 15,563 

The American births then were equal to 1*4 per 
cent, upon the native population, while the foreign 
births amounted to 5*2 per cent. 

Besides this, there were of mixed parentage : 

Foreign father 1,787 

Foreign mother 2,256 

Total 4,043 

or 10J per cent, upon the whole number of births in 
the Commonwealth. 

From all this, it appears that the foreign is gain- 
ing relatively upon the native population by natural 
increase at the rate of 5*2 to 1-4, or within a minute 
fraction of 4 to 1 ; and this may be assumed with 
considerable probable correctness as equally true 
throughout the different States of the American 
Union. 

To offset this in some measure, we have the well- 
known fact that the mortality among children is far 
greater among the foreign than the native popula- 



POPULATION. 437 

tion. The difference is very striking and suggestive. 
It may be accounted for in part by the following 
considerations : 

(1)- A very considerable share of the foreign popu- 
lation consists of those under fifty years of age, and 
so generally able to contribute to the increase of 
population. How far this fact is operative may be 
seen in the statement, that, if all persons above fifty 
were removed from the native population, it would 
be diminished somewhat over one-sixth; that is, 
brought so much nearer the numbers of the foreign. 

(2) The foreign population is engaged somewhat 
less than the native at in-door and sedentary employ- 
ments, and in so far are likely to be more vigorous. 

(3) But the grand cause for the remarkable differ- 
ence we have observed is found in the fact, that the 
foreign population are far less influenced by pruden- 
tial considerations and social restraint. They there- 
fore enter the marriage state with less regard to their 
ability to support a family respectably. Destitution, 
in the sense which restricts propagation, hardly ex- 
ists among them. Indeed, it may be said that they 
are actually richer, according to the standard of living 
they were accustomed to at home, than are our native 
population. Consequently, they do not for a moment 
hesitate to marry from any fear of want or of losing 
caste by poverty. 

On the other hand, the resistance to marriage from 
a more costly style of living, is constantly increasing 
with the native population, among whom the stand- 
ard of family expenditures rises rapidly with the 
finer culture, the more elegant arts, and the greater 
social vivacity of each new year. The foreign popu- 

37* 



438 CONSUMPTION. 

lation can get food, shelter, and clothing of some 
kind. That is their idea of life. Why, then, should 
they not marry, and rear families? To show how 
this cause operates to produce marriage among them, 
we refer again to the statistics of Massachusetts 
(1860): 

American marriages 7,381 

Foreign " 4,057 

One party foreign 943 

Nativity not stated 447 

Total 12,828 

In 1870, the marriages were : 

American 8,360 

Foreign 4,271 

Mixed 2,075 

Not stated 15 

Total 14,721 

According to population, the purely American 
marriages should have been about 18,000, or consid- 
erably more than twice the actual number. Here 
we find the force of social restraint acting on the 
native population. 

Such, then, are the principal causes w T hich limit 
population. The course of propagation, as affected 
by subsistence alone, may be described as follows: 
From a given point destitution will bear it down by 
the most painful pressure, involving social and indi- 
vidual misery and degradation. Under a scant and 
difficult livelihood it will bear upward by its inhe- 
rent forces, but slowly and with constant opposition. 
Competence gives it an assured and regular course ; 
relieving from all considerations of physical main- 
tenance, but substituting therefor healthful and har- 



IMMIGRATION. 439 

monious restraints, hardly less powerful. Under 
these influences, society gains in wealth, leisure, and 
comfort, and is able to organize, educate, and con- 
trol its population. Every child born into this con- 
dition may be born to health and happiness, and to 
be a strength and ornament to the state. 

We have thus far spoken of the reproductive 
forces without recognizing the differences originating 
in diversities of climate and ethnical stock. These 
unquestionably exist, and greatly modify the facts 
of propagation ; but, as they are local and peculiar, 
we shall enter upon no discussion of them. 



CHAPTER VIL 



IMMIGRATION. 



No other country is so much influenced in its 
population by immigration, probably, as the United 
States, The whole number of persons of foreign 
birth arriving from 1820 to 18T0 was 7,803,865. 
The number in the country by the census of 1870 
was 5,566,546, showing that of the whole number 
of immigrants for fifty years 2,237,319 had died or 
left the country. We make the following compari- 
sons, drawn from facts found in the last census : 

1. Total foreign born, as above 5,566,546 

2. Total having both parents foreign born .... 9,734,845 

3. Total having one or both parents foreign born . . 10,892,015 

Deducting No. 1 from No. 2, we find the number 



440 CONSUMPTION. 

of persons born of exclusively foreign parentage to 
be 4,168,299, equal to near eleven per cent, of the 
entire population of the country. 

Deducting No. 2 from No. 3, we have the number of 
children of mixed parentage 1,157,170, equal to near 
twenty-five per cent, of the entire number born ex- 
clusively of foreign parents. This fact is interesting, 
as showing the rate at which amalgamation is taking 
place between the native element and the foreign. 

In looking at the statistics of immigration for 
several years past we find that 3,857,850 arrived 
during twelve years ending December 31, 1870. 
This number is equal to one-half of all that have 
arrived since 1820, so that the immigration of the 
last twelve years is equal to that of the thirty-eight 
years preceding, that is, in a more than triple ratio. 

Two prominent questions present themselves in 
regard to the effects of immigration : first, upon the 
general wealth of the nation; and secondly, upon 
the rate of wages. 

That the aggregate wealth of the country is in- 
creased by great influx of foreign laborers there 
can be no doubt, because, as a general fact, they 
produce of values more than they actually destroy. 
They open and improve farms, they build houses, 
and make improvements which are of a permanent 
character, and, therefore, the general inventory of 
wealth must be enlarged. Whether the average 
wealth per capita has been increased by the im- 
mense immigration of the last twelve years is un- 
certain, nor is it of much importance. 

Effect on wages. In regard to this point we may 
notice the fact that, notwithstanding the large im- 



IMMIGRATION. 441 

migration of the last fifty years, the rate of wages, 
not only nominal, but real, has been constantly in- 
creasing. The explanation is that the immigrant is 
a consumer as well as producer, and consumes, in 
some form, all he produces, — that is, he uses in the 
supply of his daily wants, or for a farm, a habita- 
tion, and their indispensable appendages, all that he 
earns. The labor market is really no more crowded 
than if he had stayed at home. His wants demand 
all his labor and supply; therefore immigration has 
no tendency to reduce wages, and will not have, 
until our vast capital in virgin lands has been ab- 
sorbed and put to use. 

EFFECT OF IMMIGRATION ON THE CONDITION OF THE 
NATIVE LABORER. 

Has the physical condition and social position of 
the native laborer been unfavorably affected by the 
influx of foreigners ? We answer in the negative, 
because the general intelligence and enterprise of the 
native population are far in advance of those of the 
classes who come to this country to find employ- 
ment, and consequently the former take the lead in 
all industrial undertakings. Visit our great work- 
shops and factories, and who are the leading work- 
men, the overseers, and managers? Foreigners? 
Very seldom. So in regard to female labor. Thirty 
years ago the operatives in our mills were American 
children and girls. Are they so now ? Certainly 
not. Their places have been taken by Irish, French, 
and other immigrants, and the young women and 
children of American descent are in better employ- 
ments, with increased compensation. 



442 CONSUMPTION. 

Looking at the results, then, the native laborer 
has nothing to fear from this influx of foreigners. 
The development of the natural resources of the 
nation is hastened by it, while the original inhabit- 
ants, so far as wages and the rewards of labor are 
concerned, are improved rather than injured thereby. 

Chinese immigration. All this is more emphatically 
true in regard to the Chinese laborer. -He is docile, 
industrious, economical, and has all those habits and 
traits of character that lit him for a useful emploj^e. 
Like a labor-saving machine, he produces commo- 
dities at a less cost than other laborers, and the ad- 
vantage inures to all others as well as himself. 

That there is a great difference in the physical and 
moral quality of immigrants arising from ethnic pe- 
culiarities and characteristics, there is no doubt ; 
that some are far more desirable as settlers and citi- 
zens than others cannot be disputed, but American 
institutions receive all, tolerate all ; must educate 
and elevate all, fusing the whole if possible into a 
homogeneous, enlightened, and prosperous people. 
Such is the grand experiment upon which for weal 
or woe the American republic has entered. 



RIGHT CONSUMPTION. 443 



CHAPTER VIII. 

IMPORTANCE OF A RIGHT CONSUMPTION. 

This has been already shown by the light of our 
definition of consumption. It has all the importance 
which belongs to the science itself. 

Consumption makes use of the wealth which pro- 
duction has brought about with all the world's in- 
dustrial energy. It determines how each appreci- 
able atom shall be applied : whether to degrade, or 
to elevate ; whether, like fruitful seed, to reappear 
in harvest, or, like a virulent acid, to destroy the 
very vessel in which it is placed; whether to set 
forth the humble household of the laborer, or to 
gleam a moment in the halls of revelry ; whether to 
feed a thousand workmen on the temple of national 
industry, or to melt out of sight, like Cleopatra's 
jewel, in wanton luxury. 

All the moral and social interest that belongs to 
wealth, belongs to its use ; for as that is right or 
wrong, healthful or hurtful, so wealth itself is a 
blessing or a curse; so science should strive after it 
with earnest efforts, or guard against with the same 
wise precaution and thorough research which keep 
out the plague. 

There is a right consumption of wealth that would 
bring comfort, health, and education within the 
reach of every human being not born incapable of 
receiving them ; that would make poverty impossi- 
ble on the earth ; that would dispense w T ith half the 



444 CONSUMPTION. 

inducements to crime ; that would beautify every 
home, and lighten every work. It may not be wise 
to expect the quick attainment of such a result, or 
worth while to prepare our robes for such an ascen- 
sion of humanity; but just as far as the consump- 
tion of wealth can be affected by human laws, or 
customs and agreements, in so far may this end be 
approached in every day of time. It is only one 
part of this possibility at which the poet looked, 
when he said, — 

" Were half the power that fills the world with terrror, 
Were half the wealth bestowed on camps and courts, 
Given to redeem the human mind from error, 
There were no need of arsenals and forts." 

The mind can hardly lift itself to see — 

" What might be done, if men were wise." 

Yet political economy is a " dismal science," in- 
deed, if we cannot look on to the gradual ameliora- 
tion of our human condition, not by miracle from 
the earth or the air, but by a wiser use of wealth, 
for kind purposes created and bestowed, — 

"All slavery, warfare, lies and wrongs, 
All vice and crime might die together ; 
And wine and corn, 
To each man born, 
Be free as warmth in summer weather." 

Not only does all the advantage of present or ac- 
cumulated wealth depend on the use made of it in 
consumption, but the very existence of future wealth 
is decided on the same ground. 

We have said that wealth has its generations. The 
life of man is brief, but he outlives property. A few 



RIGHT CONSUMPTION. 445 

articles of value may endure for centuries; but, in 
the average, their term is very short. Simply by 
wear and tear, the earth would be left destitute in a 
few years, if no provision were made for reproduc- 
tion. Our kind is placed on the verge of such a 
chance, and can never go away from it. The dreary 
desolation of many nations illustrates the tremen- 
dous possibilities that lie in the use made of wealth. 

We are accustomed to things as they have been. 
It is difficult to appreciate even that which we know 
might be. There is no economical reason why every 
people on the face of the earth should not be rich, 
prosperous, and independent; every person free, com- 
fortable, ambitious, with plenty at hand, and every- 
thing to hope for. As it is, the homes of competence 
or decency are, the world over, hardly more than 
islands struggling up from the ocean ; a few spots 
redeemed from misery and ruin. 

This advance towards economic good is not a piece 
of work to be paid for only when finished. If the 
grand result seems hopelessly distant, every step 
towards it does yet receive its reward ; every effort 
brings something of fruition. No government or 
individual conforms, for a single act, to right prin- 
ciples of consumption ; but the community gains 
palpably by it : perhaps the " last straw" of taxation 
is removed, or a capitalist offers employment to a 
starving workman. 

There have been efforts to restrict political 
economy, so that it should have no occasion to ask 
these questions ; to cut off all that view which looks 
out on the field of reproduction ; to shut up our in- 
quiries to the immediate, present creation of wealth, 

38 



446 CONSUMPTION. 

its exchange, distribution, and consumption, with- 
out regard to ultimate effects, and considering one 
article of value as equally commendable with any 
for which it will exchange. Such a mode of treat- 
ment practically detaches the department of con- 
sumption from the science. 

A sagacious and generally correct writer* has even 
gone so far as to announce, "if a laborer is willing 
to work all day for a quart of whisky to get 
drunk upon, political economy does not question his 
wisdom." 

It is, of course, within the discretion of any author 
to confine his inquiries so narrowly, and to erect 
them into a consistent system ; but such a system 
will have little of that interest which attaches to a 
scheme that considers the industrial interests of man 
as a whole, and for all time. It may be a science of 
political economy, but not the science, as we choose 
to regard it. 

If the laborer expends his day's earnings on a 
quart of whisky, he will, most likely, be disabled 
one day after. The account with society will stand, 
at the close of the second day, as follows : one day's 
work done, of which the employer, and consequently 
society, has the advantage ; no wages laid up ; some- 
thing taken off the health of the laborer, and the 
order of the community. But if the earnings are 
spent on tools or the education of self and family, 
or on personal support, the account will read quite 
otherwise : two days' work done, of which the em- 
ployer and society obtain the advantage ; two days' 

* Prof. Newcombe, in his u Financial Policy." 



RIGHT CONSUMPTION. 447 

wages iii the hands of the laborer, to be applied to 
the rearing of a useful and self-respecting family, to 
the maintenance of government, to the increase or 
perfection of tools, or to wholesome enjoyment and 
culture. 

It is not, of course, possible, that, from a moral 
standpoint, there can be any question as to the im- 
portance of a right consumption ; but does not the 
same interest attach to it in the light of political 
economy, considered merely as seeking to effect the 
largest production, and the most beneficent distri- 
bution of wealth ? We do not ask whether such 
inquiries cannot properly be received into the science, 
but whether any scheme can be respectably complete 
which does not embrace them. It must not, of 
course, look at any question in a purely moral light. 
Yet the two interests will not be found widely and 
permanently apart. Political economy has for its 
end the economic good of society on the whole, and 
in the long-run. 

We have used a phrase which explains itself, and 
which has already received various illustrations in 
what has gone before. But it may be worth while 
to fix and detain in positive shape the general im- 
pression we have of it. 

WHAT IS THE ECONOMIC GOOD? 

It is that application of the industrial faculties to 
the agencies of matter which will bring out, easiest 
and fullest, the satisfaction of those desires which are 
healthful and harmonious in the nature of man. 

Does this imply the satisfaction of the greatest 



448 CONSUMPTION. 

amount of desires, if, indeed, they can be thus 
spoken of in aggregation ? Not necessarily, by the 
terms of our definition; yet practically we believe 
it is true, that, taking in all of life and the whole of 
society, a greater satisfaction will be obtained by 
ministering to those desires which are natural and 
reasonable, than by catering to artificial tastes, de- 
praved appetites, and violent passions. 

Does it imply the greatest possible creation of 
values ? 

Again we say, not necessarily ; and yet it is un- 
doubtedly true, that there is no surer way of secur- 
ing the best satisfaction of the greatest amount of 
desires, than by striving for the accumulation of the 
largest possible wealth. There may be, will cer- 
tainly be, a portion of such wealth that does not 
tend to improve its possessor, either as to character 
or condition ; there will be a portion that will not 
receive its best application, either morally or eco- 
nomically, just as the nourishing rain falls not less on 
the streams that do not need it, and on the stony 
ground that will not profit by it, than upon the grass 
and the grains that are thirsty for it, and will repay 
it in a plentiful harvest. But this is the way of 
earth/ If human laws and institutions do not inter- 
fere to prevent, the natural order of things will be 
sure to bring out the best physical condition of man- 
kind, through the greatest creation of values. *V 

It will be observed, that this definition of the eco- 
nomic good requires an equitable distribution of 
wealth, since the desires of one can be but poorly 
satisfied out of the possessions of another. We 
should therefore regard with more complacency a 



HIGHT CONSUMPTION. 449 

certain amount of values, fairly divided, than a much 
greater amount heaped in wasteful and unjust ag- 
gregations, or bestowed on those that can neither 
employ nor enjoy it. 7 But this, again, we leave to 
the operation of natural laws, when undisturbed by 
legislation and prescription, confident that a better 
state of things will result than can be brought about 
by man's wisdom. 1 ' 

To sum up, then : Although much may be pro- 
duced that does not satisfy any wholesome or lawful 
desire of man's being; although much inequality 
and injustice may take place in distribution, which 
shall so far neutralize the bounty of nature, and the 
industry of man; and although the greatest wealth 
is not logically coincident with the highest economic 
good, — we can yet accept the former as the end and 
aim of our science, satisfied it is in this shape that 
the latter is to come to us. 



38* 



IKDEX. 



Agriculture, effected by transmuta- 
tion, 38 ; the base of the pyramid 
of production, 38 ; furnishes men 
and materials for other depart- 
ments of production, 39 ; its pro- 
ducts not correctly measured by 
mixed currency, 220. 

Amsterdam, Bank of, 243. 

Apprenticeships, shortened by the 
division of labor, 38; interfer- 
ence with, despotic and disadvan- 
tageous, 310. 

Art, economy of, 427. 

Balance of trade, 132. 

Banking (Free), 247; joint stock, 
profitable in England, 237. 

Banking, profitable without issue 
of notes, 237 ; banks belong to 
civilization, 238; national bank 
system, 250 ; differs from the State 
bank system, 258 ; resembles it in 
what? 253 ; statistics showing the 
character of this currency, 255- 
257. Savings-banks, 200.^ 

Barter, inconvenience of, 235. 

Bastiat, quoted on value, 24 et seq. 

Bills of exchange, 264; the barome- 
ter of trade, 269; are they cur- 
rency? 271. 

Book accounts, 262. 

Boot and shoe manufacture never 
protected, 112 ; steady growth 
and prosperity of, 112. 

Bounties preferable to duties, 344. 

British exchange, 269; why at a 
high premium, 269. 

Burke, quoted, 247. 

Capital, definition of, 32 and 64 ; its 
forms, 32; growth, 33; relations 
to labor, 34; not the antagonist 



of labor, 35 ; co-operation with 
labor, 64; power of, increased by 
aggregation, 62 ; origin of, 66 ; 
fixed, 66; circulating, 67; pro- 
ductive and unproductive, 68. 
Union of capital and labor, 70 ; 
when most productive, 70, 71 ; at 
what rate it should increase, 73 ; 
should correspond with popula- 
tion, 73 ; can there be a surplus ? 
74. 

Charity and poor laws, 411; what 
classes entitled to it, 412 et seq. ; 
how and by whom administered, 
414. 

Clearing-house certificates, 250. 

Cobden, Richard, quoted, note, 241. 

Coinage, 145 ; adaptation of the 
precious metals to, 142 ; what the 
government does by coinage, 146. 

Consumption, 391; definition of, 
392 ; importance of a right con- 
sumption, 443 ; combinations to 
raise wages, 295. 

Contracts, effects of credit currency 
upon, 148. 

Convertibility distinguished from 
redeemableness, 153. 

Co - operative associations, 296 ; 
Rochdale movement, 296 ; condi- 
tions in regard to co-operation, 
298 ; conditions of success, 299. 

Co-operative copartnerships, 301. 

Culture, economic, 80. 

Currency, four kinds, money, 140 ; 
credit currency, 146 ; effects of, 
on prices, 147 ; mixed, 151 ; table 
of, for 26 years, 175 ; fluctuations 
of, 175; diagram, 176; proportion 
of specie to circulation, table, 
178; mercantile, 242: national 
bank, 250; characteristics of the 
(451) 



452 



INDEX. 



different kinds, 250. See mixed 
currency, 168. 

Debt, national, conversion into capi- 
tal, 365 ; practicability and ad- 
vantages of, 366. Fallacies re- 
specting the payment of the 
national debt, 372. 

Deferred income, 352. 

Deposits, analysis of, 162 ; perma- 
nent or compulsory, 163 ; fidu- 
ciary, 163 ; active, 164; dangerous, 
164; are deposits currency? 166. 

Dilemma of mixed-currency banks, 
183. 

Disarmament, general and simul- 
taneous, 426. 

Distribution, 274 ; arises from divi- 
sion of labor, 274; complete in 
wages, profits, interest, and taxa- 
tion, 276. 

Dividends — profits upon business 
done by proxy, 318. 

Duties, kinds of, ad valorem and 
specific, 339 ; unequal bearings 
of, 340 ; enhances cost of pro- 
tected articles, 342. 

Economic culture, 80 ; the field of, 
82. The economic good, 447. 

Education of the laborer, 284; pub- 
lic economy of, 427. 

Elliott, E. B., quoted as authority, 
366. 

English joint-stock banks profit- 
able, 237 ; statistics of, 237. 

England, the best illustration of the 
want of a sound currency, 244. 

Entrepreneur, 311. 

Evidences of debt, different kinds 
of, 252. 

Exchange, 36 ; instruments of, 136; 
indirect, 266 ; domestic and for- 
eign, 266; natural rate of, 268; 
British, 249 ; rapidity of, affecting 
profits, 316. 

Exports, taxation of, 353. 

Fallacies of protection, 109. Infant 
manufactures, 109. Development 
of manufactures, 112. Raising 
wages, 114. Defence against pau- 
per labor, 115. Home market, 
117. Exhaustion of soil, 118. 
Protection of capital, 119. Mer- 
cantile interests, 120. 



Fallacies regarding mixed currency, 
— increases capital, 228 ; cheaper 
than a value currency, 229 ; a 
cause of prosperity, 231 ; a neces- 
sity, not gold and silver enough, 
232 ; favorable to small capital- 
ists, 235 ; could have no banks 
without, 236 ; can be regulated 
by law, 238. Banks should stave 
off suspension, 239 ; benefits 
stockholders, 240. 

Fawcett, Prof., quoted, 296. 

Flour and cotton, prices of, table 
6, 222. 

Foreign indebtedness, economy of, 
368 ; fallacies respecting, 370, 
Free banking, 247. 

Geneva, Bank of, 243. 

Gold, its qualities, 143 ; abrasion 
of, 144. 

Gold notes, 248. 

Government, economically best that 
govern least, 101 ; debt, 365 ; its 
payment practicable, 366. 

Hamburg, Bank of, 243. 

Hours of labor, reduction of, 302 ; 
economic effect on the laborer, 
305 ; effect on capital, 307. 

Immigration, 439 ; effects upon 
American labor, 441 ; Chinese, 
442. 

Income tax, 349, character of in- 
come tax, 350 ; estimated income, 
352. 

Industry, how diversified, 97. 

Infant manufactures, 109. 

Inheritance and bequest, laws of, 
384. 

Interest, 319; effect of usury laws 
upon, 320 ; rate of, determined 
by the condition of society, 323. 

Inventions hastened by division of 
labor, 47. 

Ireland, population before the fam- 
ine, note, 44 ; her capital not 
proportionate to labor, 73. 

Iron, advantages for producing it 
in the United States, 102 ; why 
all required is not made, 103 ; 
effects of protection upon, 106. 

Joint -stock banks in England, 

237. 



INDEX. 



453 



Labor, definition of, 31. Work of 
slaves not labor, 32; division of, 
44; advantages of, 46 j limitations 
of, 5^ ; recognition of, in the pro- 
fessions, 54 ; disadvantages of, 
55; enervates, 5b; cramps the 
mind, 57; compensation, 57; less- 
ens the number of employers, 60; 
concentrates capital and gives it 
power, 62. Productive and unpro- 
ductive labor examined, 80. Three 
classes of labor, 274; physical, 
mental, subsidiary, 275; receives 
its reward in three forms, 275; 
reduction of hours of, 302 ; eco- 
nomic effects of, on production, 
304; effects upon capital, 307; 
effects of foreign immigration 
upon, 441. Levi, Prof., quoted, 
402. 

Labor combinations, 291. Eight of 
laborers to combine, 291. 

Laborer, education of, 284; frugality 
of, 285. Distinction of sex, 286. 
Why females have less wages, 
287 ; a favorable change in pro- 
gress, 68. Economic effects of a re- 
duction of the hours of labor upon 
the laborer, 305. The laborer a 
consumer as well as producer, 306. 

Land the great instrument for pro- 
duction of values, 104; great 
advantages of a public domain, 
105. 

Laws of inheritance and bequest,384. 

Learning and art, 403. 

Learning as affecting wages, 284. 

Licenses, or special taxes, 348. 

Mercantile currency, 242 ; a substi- 
tute or certified currency, 242 ; 
practicability of, 243 ; illustrated, 
Bank of Genoa, of Amsterdam, 
of Hamburg, 243. England illus- 
trates the necessity of, 244. Mer- 
cantile currency, banking suffi- 
ciently profitable without issues, 
246. Gold notes, 248. 

Mill, John Stuart, quoted, note, 311. 

Mixed currency, 151 ; quantity of, 
152; banks, liabilities of, 154; 
resources, 156; statistics of, 158; 
fluctuations of, 168, 174; not 
satisfactory, 169 ; not governed 
by laws of value, 169 ; expansions 
of, 170; contractions of, 171. Ta- 



bles, 175 ; Diagram, No. 1, 176; 
extreme fluctuations of, a table, 
1 78 ; composition of tables 2 and 
3, 179; as a medium of exchange, 
180 ; unreliability of, 181 ; defec- 
tive as a standard of value, 184; 
how it does perform this function, 
188 ; effect on prices, Diagram 
No. 2, 193 ; endangers domestic 
tranquillity, 199, and national 
safety, 202 ; discourages domestic 
industry, 205; Diagram No. 3, 
209 ; governs importations, 211 ; 
causes fluctuations in rates of in- 
terest, 216 ; Diagram No. 4, 214 ; 
Diagram No. 5, 217; unequal 
effects upon different interests, 
220 ; injurious to agriculture espe 
cially, 220; effects on manufac- 
tures, 225 ; on trade and trans- 
portation, 226; fallacies respect- 
ing, — see under that head, 228. 
Money, a standard of value, 138, 
139, 141. 

Nation, how enriched by trade, 97. 

National debt, conversion into capi- 
tal, 365; its practicability, 366; 
results of, 367 ; fallacies respect- 
ing, 372. 

National banks, 250. 

Notes, gold, 248. 

Notes of hand, 263. 

Page, " Hardcastle," of Bank of 
England, quoted, 241. 

Paper, effects of war protection 
upon its manufacture, 108. 

Partnership in profits, 301. 

Political economy, the science of 
wealth, 17; what it teaches, 18; a 
positive science, 19 ; embarrassed 
by legislation, 20; by prejudice 
and self-interest, 21 ; by loose 
phraseology, 21; the science of 
values, 22 ; division of the science, 
36 ; what it has for its end, 447. 

Poll-tax payers, 356. 

Poor laws, 411. 

Population, 430 ; fallacies respect- 
ing, 431. Statistics of births, 435 ; 
of marriages, 438. 

Precious metals, their adaptation to 
use as currency, 142; assumed 
deficiency for the wants of trade, 
232. 



454 



INDEX. 



Price, what is it ? 189. Table of 
prices, 191 ; relation to currency, 
193. Prices of agricultural pro- 
ducts, 220. 

Primogeniture and entail, 387. 

Production, what it is, 38. Trans- 
mutation, 40. Transformation, 
40. Transportation, 42; condi- 
tion of the highest, 44; compari- 
son with Great Britain, 73. 

Profits, 311; defined, 311. The 
entrepreneur, or business man's 
reward, 311. Result from the 
union of capital and labor, 312; 
profits on business done, not on 
capital employed, 314; illustrated, 
314; rate of, 314; affected by 
rapidity of exchange, 316. The 
wages of the employer, 317. 

Protection, term first used, 99 ; de- 
fined, 99; designed to diminish 
imports and direct industry into 
new channels, 101 ; effect of the 
protective policy, 106. Protective 
theory, fallacies of, 109 ; a war of 
interests, 121 ; to support existing 
manufactures, 124; the practical 
difficulty of, 125 ; final argument 
for, 126. Protection and currency, 
207. 

Rent implies ownership of land, 
325 ; how it arises, 326 ; from 
location, 327 ; difference of fer- 
tility, 328 ; population, 329 ; ap- 
plication of capital, 329 ; land 
appendages, 330. 

Sanitary statistics, 59. 

Savings-banks, 200. 

Shoe trade, 112. 

Smith, Adam, quoted, on paper 

money, 231; on taxation, 334.-— 
Stamps, 347. 
Standard of value, what is it? 185; 

what in the United States, 186. 
Steel protection, 122. 
Sterling exchange, 269. 
Strikes, 294. 
Sumptuary laws, 405. 

Tariffs, defined, 100; do tariffs ne- 
cessarily diminish consumption ? 
100 ; revenue tariff consistent with 
free trade, 100. Several tariffs, 

208. 



Taxation, principles of, 333 ; forms 
of American, 338 ; national, 339 ; 
increased by rise of home com- 
modities, 341 ; customs an expen- 
sive mode of, 343 ; bounties pre- 
ferable, 344. Excise — taxes on 
disadvantageous consumption, 
346. Stamps, 347. Licenses, or 
special taxes, 348 ; income tax, 
349 ; history of, 349 ; objection 
to, 350. Deferred income, 352. On 
exports, 353 ; on cotton, 354. 
State taxation, 355 ; poll - tax 
payers, 356; property and poll 
tax, bearings of, 358 ; taxation of 
credit, 360 ; exemption of govern- 
ment bonds, 363. 

Trade, principles of, 86 ; arises from 
division of labor, 86 ; domestic, 
foreign, carrying trade, 87; sub- 
divisions of, 87; illustration, 88; 
what communities will trade most? 
89 ; trade but the territorial divi- 
sion of labor, 90 ; Chinese, French, 
English, American, 90 ; must pro- 
duce a surplus in order to trade, 
91 ; each nation interested in the 
general production, 91; harmo- 
nizes all the differences of indus- 
try, 92 ; obstructions to, 93 ; physi- 
cal, legal, conventional, 93; the 
two reasons for trade, 93 ; illustra- 
tion of mutual interests, 94 ; true 
of all countries, increases produc- 
tion, 96 ; governmental interfer- 
ence by obstructing of, 98 ; ob- 
structions to, by false currency, 
128 ; social obstacles, 130 ; balance 
of, 132; how adjusted, 134. 

Trades' unions, 292. 

Trades, unhealthy, 285. 

Trade and transportation class, 226. 

Transmutation, transformation, 
transportation, three forms of 
production, 38. 

Transportation obstacles to trade, 
130. 

Usury laws, effects of, on rate of 
interest, 320. 

Value, definition of, 23; distin- 
guished from utility, 27. 

Wages, 276 ; laws that govern wages,^ 
276; cost of labor depends upon, 



INDEX. 



455 



278; rise and fall of wages, 280; 
no speculative demand for wages, 
280 ; hence the laborer suffers, 
280 ; never rise so much as com- 
modities, 281; fall sooner, 281; 
a difficult matter to determine, 
281 ; distinction of sex, 286 ; 
wages of school teachers in Mas- 
sachusetts, note, 286 ; a new classi- 
fication of, 289 ; muscular, mental, 
moral, 289; a universal rise of 
no benefit to the laborer, 306 ; 
equalization of, 309. 



Wants, human, their place in the 
science of wealth, 18. 

War, finance of, 418 ; economy of 
war system, 420 ; a moral necessi- 
ty, why ? 424; influences against, 
425 ; absurdity of the present war 
system, 425. 

Wealth defined, 21 ; distinguished 
from capital, 64; wealth of the 
United States, 72. 

William of Orange, 378 ; William 
IV., 397. 

Workmen better off than formerly, 
280. 



THE END. 



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